10-Q
20101028 5.90 MB 97
<html lang="en-US"> <HEAD> <title>Form 10-Q filed by on 2010-10-28</title> </HEAD> <BODY bgcolor="#FFFFFF"> <!-- PAGEBREAK --> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV> <DIV style="width: 100%; border-bottom: 1pt solid black; font-size: 1pt">&nbsp;</DIV> <DIV align="center" style="font-size: 14pt; margin-top: 10pt"><B>UNITED STATES<BR> SECURITIES AND EXCHANGE COMMISSION</B> </DIV> <DIV align="center" style="font-size: 12pt"><B>WASHINGTON, D.C. 20549</B> </DIV> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><DIV align="center"><DIV style="FONT-size: 1pt; margin-top: 10pt; width: 26%; border-top: 1px solid #000000">&nbsp;</DIV></DIV></DIV> <DIV align="center" style="font-size: 18pt; margin-top: 10pt"><B>FORM 10-Q</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt">(Mark One) </DIV> <DIV align="center"> <TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt"> <TR style="font-size: 1pt"> <TD width="7%">&nbsp;</TD> <TD width="5%">&nbsp;</TD> <TD width="88%">&nbsp;</TD> </TR> <TR valign="top"> <TD align="center"><FONT style="font-family: Wingdings">&#254;</FONT> </TD> <TD>&nbsp;</TD> <TD><B>QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B></TD> </TR> </TABLE> </DIV> <!-- xbrl,dc --> <DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B>For the quarterly period ended September&nbsp;30, 2010</B></DIV> <!-- /xbrl,dc --> <DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>OR</B></DIV> <DIV align="center"> <TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt"> <TR style="font-size: 10pt"> <TD width="7%">&nbsp;</TD> <TD width="5%">&nbsp;</TD> <TD width="88%">&nbsp;</TD> </TR> <TR valign="top"> <TD align="center"><FONT style="font-family: Wingdings">&#111;</FONT> </TD> <TD>&nbsp;</TD> <TD><B>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B></TD> </TR> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B>For the transition period from <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> to <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></B></DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="15%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="64%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="15%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center"><B>Exact Name of Each Registrant as specified in its</B></TD> <TD>&nbsp;</TD> <TD nowrap align="center">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD nowrap align="center"><B>Commission File</B></TD> <TD>&nbsp;</TD> <TD nowrap align="center"><B>charter; State of Incorporation; Address; and</B></TD> <TD>&nbsp;</TD> <TD nowrap align="center"><B>IRS Employer</B></TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Number</B></TD> <TD>&nbsp;</TD> <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Telephone Number</B></TD> <TD>&nbsp;</TD> <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Identification No.</B></TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom"> <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">1-8962</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top"><B>PINNACLE WEST CAPITAL CORPORATION</B></TD> <TD>&nbsp;</TD> <TD align="center" valign="top">86-0512431</TD> </TR> <TR valign="bottom"> <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">(an Arizona corporation)</TD> <TD>&nbsp;</TD> <TD align="center" valign="top">&nbsp;</TD> </TR> <TR valign="bottom"> <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">400 North Fifth Street, P.O. Box 53999</TD> <TD>&nbsp;</TD> <TD align="center" valign="top">&nbsp;</TD> </TR> <TR valign="bottom"> <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">Phoenix, Arizona 85072-3999</TD> <TD>&nbsp;</TD> <TD align="center" valign="top">&nbsp;</TD> </TR> <TR valign="bottom"> <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">(602) 250-1000</TD> <TD>&nbsp;</TD> <TD align="center" valign="top">&nbsp;</TD> </TR> <TR valign="bottom"> <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">1-4473</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top"><B>ARIZONA PUBLIC SERVICE COMPANY</B></TD> <TD>&nbsp;</TD> <TD align="center" valign="top">86-0011170</TD> </TR> <TR valign="bottom"> <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">(an Arizona corporation)</TD> <TD>&nbsp;</TD> <TD align="center" valign="top">&nbsp;</TD> </TR> <TR valign="bottom"> <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">400 North Fifth Street, P.O. Box 53999</TD> <TD>&nbsp;</TD> <TD align="center" valign="top">&nbsp;</TD> </TR> <TR valign="bottom"> <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">Phoenix, Arizona 85072-3999</TD> <TD>&nbsp;</TD> <TD align="center" valign="top">&nbsp;</TD> </TR> <TR valign="bottom"> <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">(602) 250-1000</TD> <TD>&nbsp;</TD> <TD align="center" valign="top">&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Indicate by check mark whether each registrant (1)&nbsp;has filed all reports required to be filed by Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12&nbsp;months (or for such shorter period that the registrant was required to file such reports), and (2)&nbsp;has been subject to such filing requirements for the past 90&nbsp;days. </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="39%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="5%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="50%">&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom"> <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">PINNACLE WEST CAPITAL CORPORATION </DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">Yes <FONT style="font-family: Wingdings">&#254;</FONT> </TD> <TD>&nbsp;</TD> <TD align="left" valign="top">No <FONT style="font-family: Wingdings">&#111;</FONT></TD> </TR> <TR valign="bottom"> <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">ARIZONA PUBLIC SERVICE COMPANY </DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">Yes <FONT style="font-family: Wingdings">&#254;</FONT> </TD> <TD>&nbsp;</TD> <TD align="left" valign="top">No <FONT style="font-family: Wingdings">&#111;</FONT></TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule&nbsp;405 of Regulation&nbsp;S-T during the preceding 12&nbsp;months (or for such shorter period that the registrant was required to submit and post such files). </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="39%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="5%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="50%">&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom"> <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">PINNACLE WEST CAPITAL CORPORATION </DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">Yes <FONT style="font-family: Wingdings">&#254;</FONT> </TD> <TD>&nbsp;</TD> <TD align="left" valign="top">No <FONT style="font-family: Wingdings">&#111;</FONT></TD> </TR> <TR valign="bottom"> <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">ARIZONA PUBLIC SERVICE COMPANY </DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">Yes <FONT style="font-family: Wingdings">&#111;</FONT> </TD> <TD>&nbsp;</TD> <TD align="left" valign="top">No <FONT style="font-family: Wingdings">&#111;</FONT></TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of &#147;large accelerated filer,&#148; &#147;accelerated filer&#148; and &#147;smaller reporting company&#148; in Rule&nbsp;12b-2 of the Exchange Act. </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="26%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="17%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="22%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="26%">&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom"> <TD colspan="7" valign="top" align="left">PINNACLE WEST CAPITAL CORPORATION</TD> </TR> <TR valign="bottom"> <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Large accelerated filer <FONT style="font-family: Wingdings">&#254;</FONT> </DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">Accelerated filer <FONT style="font-family: Wingdings">&#111;</FONT> </TD> <TD>&nbsp;</TD> <TD align="left" valign="top">Non-accelerated filer <FONT style="font-family: Wingdings">&#111;</FONT> </TD> <TD>&nbsp;</TD> <TD align="left" valign="top">Smaller reporting company <FONT style="font-family: Wingdings">&#111;</FONT></TD> </TR> <TR valign="bottom"> <TD colspan="7" valign="top" align="left">ARIZONA PUBLIC SERVICE COMPANY</TD> </TR> <TR valign="bottom"> <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Large accelerated filer <FONT style="font-family: Wingdings">&#111;</FONT> </DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">Accelerated filer <FONT style="font-family: Wingdings">&#111;</FONT> </TD> <TD>&nbsp;</TD> <TD align="left" valign="top">Non-accelerated filer <FONT style="font-family: Wingdings">&#254;</FONT> </TD> <TD>&nbsp;</TD> <TD align="left" valign="top">Smaller reporting company <FONT style="font-family: Wingdings">&#111;</FONT></TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Indicate by check mark whether each registrant is a shell company (as defined in Exchange Act Rule&nbsp;12b-2). </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="39%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="5%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="50%">&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom"> <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">PINNACLE WEST CAPITAL CORPORATION </DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">Yes <FONT style="font-family: Wingdings">&#111;</FONT> </TD> <TD>&nbsp;</TD> <TD align="left" valign="top">No <FONT style="font-family: Wingdings">&#254;</FONT></TD> </TR> <TR valign="bottom"> <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">ARIZONA PUBLIC SERVICE COMPANY </DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">Yes <FONT style="font-family: Wingdings">&#111;</FONT> </TD> <TD>&nbsp;</TD> <TD align="left" valign="top">No <FONT style="font-family: Wingdings">&#254;</FONT></TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Indicate the number of shares outstanding of each of the issuer&#146;s classes of common stock as of the latest practicable date. </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="39%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="58%">&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom"> <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">PINNACLE WEST CAPITAL CORPORATION </DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">Number of shares of common stock, no par value, outstanding as of <Font style="white-space: nowrap">October 25,</Font> 2010: 108,711,779</TD> </TR> <TR valign="bottom"> <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">ARIZONA PUBLIC SERVICE COMPANY </DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">Number of shares of common stock, $2.50 par value, outstanding as of October 25, 2010: 71,264,947</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B>Arizona Public Service Company meets the conditions set forth in General Instruction H(1)(a) and (b)&nbsp;of </B><B>Form 10-Q</B><B> and is therefore filing this form with the reduced disclosure format allowed under that General Instruction.</B> </DIV> <DIV style="width: 100%; border-bottom: 1pt solid black; margin-top: 10pt; font-size: 1pt">&nbsp;</DIV> <DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always">&nbsp;</H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="left"> <!-- TOC --> </DIV> <DIV align="left"> <A name="tocpage"></A> </DIV> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>TABLE OF CONTENTS</B> </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="86%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Page</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#101">Forward-Looking Statements</A></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#102">Part I</A></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#103">Item&nbsp;1. Financial Statements</A></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px"><A href="#104">Pinnacle West Capital Corporation</A></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px"><A href="#105">Arizona Public Service Company</A></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">44</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#106">Item&nbsp;2. Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</A></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">53</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#107">Item&nbsp;3. Quantitative and Qualitative Disclosures About Market Risk</A></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">80</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#108">Item&nbsp;4. Controls and Procedures</A></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">80</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#109">Part II</A></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">81</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#110">Item&nbsp;1. Legal Proceedings</A></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">81</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#111">Item&nbsp;1A. Risk Factors</A></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">81</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#112">Item&nbsp;5. Other Information</A></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">81</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#113">Item&nbsp;6. Exhibits</A></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">83</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#114">Signatures</A></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">86</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> <TR><TD colspan="9"><FONT size="2">&nbsp;<A href="#c06270exv12w1.htm">Exhibit 12.1</A></FONT></TD></TR> <TR><TD colspan="9"><FONT size="2">&nbsp;<A href="#c06270exv12w2.htm">Exhibit 12.2</A></FONT></TD></TR> <TR><TD colspan="9"><FONT size="2">&nbsp;<A href="#c06270exv12w3.htm">Exhibit 12.3</A></FONT></TD></TR> <TR><TD colspan="9"><FONT size="2">&nbsp;<A href="#c06270exv31w1.htm">Exhibit 31.1</A></FONT></TD></TR> <TR><TD colspan="9"><FONT size="2">&nbsp;<A href="#c06270exv31w2.htm">Exhibit 31.2</A></FONT></TD></TR> <TR><TD colspan="9"><FONT size="2">&nbsp;<A href="#c06270exv31w3.htm">Exhibit 31.3</A></FONT></TD></TR> <TR><TD colspan="9"><FONT size="2">&nbsp;<A href="#c06270exv31w4.htm">Exhibit 31.4</A></FONT></TD></TR> <TR><TD colspan="9"><FONT size="2">&nbsp;<A href="#c06270exv32w1.htm">Exhibit 32.1</A></FONT></TD></TR> <TR><TD colspan="9"><FONT size="2">&nbsp;<A href="#c06270exv32w2.htm">Exhibit 32.2</A></FONT></TD></TR> <TR><TD colspan="9"><FONT size="2">&nbsp;<A href="#pnw-20100930.xml">EX-101 INSTANCE DOCUMENT</A></FONT></TD></TR> <TR><TD colspan="9"><FONT size="2">&nbsp;<A href="#pnw-20100930.xsd">EX-101 SCHEMA DOCUMENT</A></FONT></TD></TR> <TR><TD colspan="9"><FONT size="2">&nbsp;<A href="#pnw-20100930_cal.xml">EX-101 CALCULATION LINKBASE DOCUMENT</A></FONT></TD></TR> <TR><TD colspan="9"><FONT size="2">&nbsp;<A href="#pnw-20100930_lab.xml">EX-101 LABELS LINKBASE DOCUMENT</A></FONT></TD></TR> <TR><TD colspan="9"><FONT size="2">&nbsp;<A href="#pnw-20100930_pre.xml">EX-101 PRESENTATION LINKBASE DOCUMENT</A></FONT></TD></TR> <TR><TD colspan="9"><FONT size="2">&nbsp;<A href="#pnw-20100930_def.xml">EX-101 DEFINITION LINKBASE DOCUMENT</A></FONT></TD></TR> </TABLE> </DIV> <DIV align="left"> <!-- /TOC --> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>This combined Form&nbsp;10-Q is separately provided by Pinnacle West Capital Corporation (&#147;Pinnacle West&#148;) and Arizona Public Service Company (&#147;APS&#148;). Any use of the words &#147;Company,&#148; &#147;we,&#148; and &#147;our&#148; refer to Pinnacle West. Each registrant is providing on its own behalf all of the information contained in this Form&nbsp;10-Q that relates to such registrant and, where required, its subsidiaries. Except as stated in the preceding sentence, neither registrant is providing any information that does not relate to such registrant, and therefore makes no representation as to any such information. The information required with respect to each company is set forth within the applicable items. Item&nbsp;1 of this report includes Condensed Consolidated Financial Statements of Pinnacle West and Condensed Consolidated Financial Statements of APS. Item&nbsp;1 also includes Notes to Pinnacle West&#146;s Condensed Consolidated Financial Statements, the majority of which also relate to APS, and Supplemental Notes, which only relate to APS&#146; Condensed Consolidated Financial Statements. Item&nbsp;2 of this report is divided into two sections &#151; Pinnacle West Consolidated and APS. The Pinnacle West Consolidated section describes Pinnacle West and its subsidiaries on a consolidated basis, including discussions of Pinnacle West&#146;s regulated utility and non-utility operations.</B> </DIV> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="left"> <A name="101"></A> </DIV> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>FORWARD-LOOKING STATEMENTS</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">This document contains forward-looking statements based on current expectations, and neither Pinnacle West nor APS assumes any obligation to update these statements, even if our internal estimates change, except as required by applicable law. These forward-looking statements are often identified by words such as &#147;estimate,&#148; &#147;predict,&#148; &#147;may,&#148; &#147;believe,&#148; &#147;plan,&#148; &#147;expect,&#148; &#147;require,&#148; &#147;intend,&#148; &#147;assume&#148; and similar words. Because actual results may differ materially from expectations, we caution readers not to place undue reliance on these statements. A number of factors could cause future results to differ materially from historical results, or from outcomes currently expected or sought by Pinnacle West or APS. In addition to the Risk Factors described in Item&nbsp;1A of the Pinnacle West/APS Annual Report on Form 10-K for the fiscal year ended December&nbsp;31, 2009 (&#147;2009 Form&nbsp;10-K&#148;) and in Item&nbsp;2 &#151; Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations herein, these factors include, but are not limited to: </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>regulatory and judicial decisions, developments and proceedings;</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>our ability to achieve timely and adequate rate recovery of our costs;</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>our ability to reduce capital expenditures and other costs while maintaining reliability and customer service levels;</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>variations in demand for electricity, including those due to weather, the general economy, customer and sales growth (or decline), and the effects of energy conservation measures;</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>power plant performance and outages;</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>volatile fuel and purchased power costs;</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>fuel and water supply availability;</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>new legislation or regulation, including those relating to greenhouse gas emissions, renewable energy mandates and energy efficiency standards;</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>our ability to meet renewable energy requirements and recover related costs, including returns on debt and equity capital;</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>risks inherent in the operation of nuclear facilities, including spent fuel disposal uncertainty;</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>competition in retail and wholesale power markets;</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>the duration and severity of the economic decline in Arizona and current credit, financial and real estate market conditions;</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>the cost of debt and equity capital and the ability to access capital markets when required;</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>restrictions on dividends or other burdensome provisions in our credit agreements and Arizona Corporation Commission (&#147;ACC&#148;) orders;</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>our ability, or the ability of our subsidiaries, to meet debt service obligations;</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>changes to our credit ratings;</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>the investment performance of the assets of our nuclear decommissioning trust, pension, and other postretirement benefit plans and the resulting impact on future funding requirements;</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>the liquidity of wholesale power markets and the use of derivative contracts in our business;</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>potential shortfalls in insurance coverage;</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>new accounting requirements or new interpretations of existing requirements;</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>generation, transmission and distribution facility and system conditions and operating costs;</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>the ability to meet the anticipated future need for additional baseload generation and associated transmission facilities in our region;</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>the willingness or ability of our counterparties and power plant participants to meet contractual or other obligations;</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>technological developments affecting the electric industry; and</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>economic and other conditions affecting SunCor Development Company&#146;s (&#147;SunCor&#148;) ability to dispose of its remaining assets and satisfy its debt obligations.</TD> </TR> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt">These and other factors are discussed in Risk Factors described in Item&nbsp;1A of our 2009 Form 10-K, which readers should review carefully before placing any reliance on our financial statements or disclosures. </DIV> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->2<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="left"> <A name="102"></A> </DIV> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PART I &#151; FINANCIAL INFORMATION</B> </DIV> <DIV align="left"> <A name="103"></A> </DIV> <DIV align="left" style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000"> <TR> <TD width="7%"></TD> <TD width="1%"></TD> <TD></TD> </TR> <TR valign="top"> <TD nowrap align="left"><B>ITEM 1.</B></TD> <TD>&nbsp;</TD> <TD><B>FINANCIAL STATEMENTS</B></TD> </TR> </TABLE> </DIV> <DIV align="left"> <A name="104"></A> </DIV> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION</B> </DIV> <!-- xbrl,in --> <DIV align="center" style="font-size: 10pt"><B>CONDENSED CONSOLIDATED STATEMENTS OF INCOME</B></DIV> <!-- xbrl,body --> <DIV align="center" style="font-size: 10pt">(unaudited)</DIV> <DIV align="center" style="font-size: 10pt">(dollars and shares in thousands, except per share amounts)</DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="72%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Three Months Ended</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">OPERATING REVENUES</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Regulated electricity segment</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">1,116,211</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">1,083,750</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other revenues</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">22,874</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">5,286</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,139,085</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,089,036</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">OPERATING EXPENSES</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Regulated electricity segment fuel and purchased power</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">353,904</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">381,543</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Operations and maintenance</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">221,469</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">198,030</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation and amortization</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">104,194</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">103,008</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Taxes other than income taxes</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">37,528</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">34,015</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other expenses</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">18,365</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">5,033</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">735,460</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">721,629</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">OPERATING INCOME</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">403,625</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">367,407</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">OTHER INCOME (DEDUCTIONS)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Allowance for equity funds used during construction</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">5,524</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2,197</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other income (Note 11)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4,348</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4,386</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other expense (Note 11)</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(3,855</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(1,934</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">6,017</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4,649</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">INTEREST EXPENSE</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Interest charges</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">60,491</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">60,299</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Allowance for borrowed funds used during construction</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(6,163</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(1,349</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">54,328</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">58,950</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">355,314</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">313,106</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">INCOME TAXES</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">123,486</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">109,778</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">INCOME FROM CONTINUING OPERATIONS</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">231,828</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">203,328</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">INCOME (LOSS)&nbsp;FROM DISCONTINUED OPERATIONS</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Net of income tax expense (benefit)&nbsp;of $4,721 and $(7,567) (Note 14)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">7,211</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(12,305</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">NET INCOME</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">239,039</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">191,023</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Less: Net income attributable to noncontrolling interests (Notes 7 and 16)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">5,119</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4,371</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">233,920</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">186,652</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING &#151; BASIC</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">108,632</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">101,223</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING &#151; DILUTED</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">109,094</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">101,385</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">EARNINGS PER WEIGHTED-AVERAGE COMMON SHARE OUTSTANDING</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Income from continuing operations attributable to common shareholders &#151; basic</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">2.09</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">1.96</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Net income attributable to common shareholders &#151; basic</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2.15</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1.84</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Income from continuing operations attributable to common shareholders &#151; diluted</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2.08</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1.96</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Net income attributable to common shareholders &#151; diluted</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2.14</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1.84</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">DIVIDENDS DECLARED PER SHARE</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">0.525</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">AMOUNTS ATTRIBUTABLE TO COMMON SHAREHOLDERS:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Income from continuing operations, net of tax</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">226,700</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">198,375</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Discontinued operations, net of tax</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">7,220</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(11,723</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Net income attributable to common shareholders</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">233,920</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">186,652</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt">See Notes to Pinnacle West&#146;s Condensed Consolidated Financial Statements. </DIV> <!-- /xbrl,in --> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->3<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> <!-- xbrl,in --> CONDENSED CONSOLIDATED STATEMENTS OF INCOME</B><BR> <!-- xbrl,body --> (unaudited)<BR> (dollars and shares in thousands, except per share amounts) </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="72%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Nine Months Ended</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">OPERATING REVENUES</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Regulated electricity segment</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">2,527,052</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">2,498,838</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other revenues</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">52,982</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">16,164</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2,580,034</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2,515,002</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">OPERATING EXPENSES</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Regulated electricity segment fuel and purchased power</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">821,244</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">920,630</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Operations and maintenance</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">644,415</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">610,401</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation and amortization</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">307,864</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">304,066</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Taxes other than income taxes</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">100,936</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">100,788</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other expenses</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">41,009</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">15,862</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,915,468</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,951,747</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">OPERATING INCOME</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">664,566</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">563,255</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">OTHER INCOME (DEDUCTIONS)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Allowance for equity funds used during construction</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">16,417</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">11,919</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other income (Note 11)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,828</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4,102</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other expense (Note 11)</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(8,650</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(8,887</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">11,595</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">7,134</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">INTEREST EXPENSE</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Interest charges</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">181,937</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">177,447</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Allowance for borrowed funds used during construction</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(12,314</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(8,318</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">169,623</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">169,129</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">506,538</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">401,260</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">INCOME TAXES</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">168,143</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">137,594</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">INCOME FROM CONTINUING OPERATIONS</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">338,395</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">263,666</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">INCOME (LOSS)&nbsp;FROM DISCONTINUED OPERATIONS</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Net of income tax expense (benefit)&nbsp;of $12,611 and $(97,662) (Note 14)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">19,313</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(165,867</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">NET INCOME</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">357,708</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">97,799</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Less: Net income (loss)&nbsp;attributable to noncontrolling interests (Notes 7 and 16)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">15,005</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(690</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">342,703</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">98,489</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING &#151; BASIC</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">105,846</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">101,107</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING &#151; DILUTED</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">106,318</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">101,184</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">EARNINGS PER WEIGHTED-AVERAGE COMMON SHARE OUTSTANDING</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Income from continuing operations attributable to common shareholders &#151; basic</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3.06</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">2.47</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Net income attributable to common shareholders &#151; basic</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3.24</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">0.97</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Income from continuing operations attributable to common shareholders &#151; diluted</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3.04</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2.46</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Net income attributable to common shareholders &#151; diluted</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3.22</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">0.97</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">DIVIDENDS DECLARED PER SHARE</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">1.575</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">1.575</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">AMOUNTS ATTRIBUTABLE TO COMMON SHAREHOLDERS:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Income from continuing operations, net of tax</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">323,361</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">249,412</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Discontinued operations, net of tax</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">19,342</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(150,923</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Net income attributable to common shareholders</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">342,703</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">98,489</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt">See Notes to Pinnacle West&#146;s Condensed Consolidated Financial Statements. </DIV> <!-- /xbrl,in --> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->4<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> <!-- xbrl,bs --> CONDENSED CONSOLIDATED BALANCE SHEETS</B><BR> <!-- xbrl,body --> (unaudited)<BR> (dollars in thousands) </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="72%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">September 30,</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">December 31,</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">ASSETS</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">CURRENT ASSETS</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Cash and cash equivalents</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">195,915</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">145,378</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Customer and other receivables</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">387,435</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">301,915</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued unbilled revenues</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">180,006</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">110,971</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Allowance for doubtful accounts</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(7,901</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(6,153</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Materials and supplies (at average cost)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">174,428</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">176,020</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Fossil fuel (at average cost)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">21,826</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">39,245</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred income taxes</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">134,012</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">53,990</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Income tax receivable (Note 6)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">22,840</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">26,005</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Assets from risk management activities (Note 8)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">68,476</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">50,619</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Assets held for sale (Notes 14 and 16)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">22,312</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other current assets</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">43,983</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">30,747</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Total current assets</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,243,332</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">928,737</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">INVESTMENTS AND OTHER ASSETS</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Real estate investments &#151; net (Note 16)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">119,989</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Assets from risk management activities (Note 8)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">54,968</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">28,855</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Nuclear decommissioning trust (Note 15)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">453,963</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">414,576</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other assets</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">112,797</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">110,091</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Total investments and other assets</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">621,728</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">673,511</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">PROPERTY, PLANT AND EQUIPMENT</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Plant in service and held for future use</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">12,987,278</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">12,848,138</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Accumulated depreciation and amortization</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(4,459,579</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(4,340,645</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Net</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">8,527,699</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">8,507,493</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Construction work in progress</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">555,137</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">467,700</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Palo Verde sale leaseback, net of accumulated depreciation (Note 7)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">140,145</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">146,722</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Intangible assets, net of accumulated amortization</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">178,666</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">164,380</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Nuclear fuel, net of accumulated amortization</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">124,101</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">118,243</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:45px; text-indent:-15px">Total property, plant and equipment</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">9,525,748</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">9,404,538</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">DEFERRED DEBITS</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Regulatory assets</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">879,056</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">813,161</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Income tax receivable (Note 6)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">65,103</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">65,103</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">100,520</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">101,274</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Total deferred debits</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,044,679</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">979,538</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">TOTAL ASSETS</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">12,435,487</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">11,986,324</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt">See Notes to Pinnacle West&#146;s Condensed Consolidated Financial Statements. </DIV> <!-- /XBRL,bs --> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->5<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> <!-- xbrl,bs --> CONDENSED CONSOLIDATED BALANCE SHEETS</B><BR> <!-- xbrl,body --> (unaudited)<BR> (dollars in thousands) </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="72%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">September 30,</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">December 31,</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">LIABILITIES AND EQUITY</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">CURRENT LIABILITIES</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">253,565</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">240,637</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued taxes</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">157,697</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">104,011</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued interest</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">52,384</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">54,596</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Short-term borrowings</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">153,715</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Current maturities of long-term debt (Note 2)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">238,513</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">303,476</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Customer deposits</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">68,254</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">71,026</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Liabilities from risk management activities (Note 8)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">55,847</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">55,908</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other current liabilities</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">141,547</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">125,574</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:45px; text-indent:-15px">Total current liabilities</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">967,807</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,108,943</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">LONG-TERM DEBT LESS CURRENT MATURITIES</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Long-term debt less current maturities (Note 2)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,349,927</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,370,524</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Palo Verde sale leaseback lessor notes (Notes 2 and 7)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">113,379</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">126,000</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:45px; text-indent:-15px">Total long-term debt less current maturities</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,463,306</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,496,524</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">DEFERRED CREDITS AND OTHER</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred income taxes</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,868,860</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,496,095</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred fuel and purchased power regulatory liability (Note 3)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">41,385</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">87,291</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other regulatory liabilities</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">685,908</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">679,072</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Liability for asset retirements</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">323,134</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">301,783</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Liabilities for pension and other postretirement benefits (Note 4)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">737,644</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">811,338</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Liabilities from risk management activities (Note 8)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">80,656</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">62,443</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Customer advances</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">127,449</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">136,595</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Coal mine reclamation</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">117,029</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">92,060</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Unrecognized tax benefits (Note 6)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">66,837</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">142,099</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">127,243</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">144,077</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:45px; text-indent:-15px">Total deferred credits and other</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4,176,145</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,952,853</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">COMMITMENTS AND CONTINGENCIES (SEE NOTES)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">EQUITY (Note 9)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock, no par value</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2,418,660</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2,153,295</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Treasury stock</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(2,157</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(3,812</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Total common stock</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2,416,503</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2,149,483</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Retained earnings</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,473,683</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,298,213</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Accumulated other comprehensive loss:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:45px; text-indent:-15px">Pension and other postretirement benefits</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(52,626</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(50,892</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Derivative instruments</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(120,634</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(80,695</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:60px; text-indent:-15px">Total accumulated other comprehensive loss</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(173,260</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(131,587</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Total shareholders&#146; equity</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,716,926</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,316,109</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Noncontrolling interests (Note 7)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">111,303</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">111,895</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Total equity</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,828,229</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,428,004</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">TOTAL LIABILITIES AND EQUITY</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">12,435,487</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">11,986,324</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt">See Notes to Pinnacle West&#146;s Condensed Consolidated Financial Statements. </DIV> <!-- /xbrl,bs --> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->6<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> <!-- xbrl,cf --> CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS</B><BR> <!-- xbrl,body --> (unaudited)<BR> (dollars in thousands) </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="72%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Nine Months Ended</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">CASH FLOWS FROM OPERATING ACTIVITIES</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">357,708</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">97,799</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Adjustments to reconcile net income to net cash provided by operating activities:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Gain on sale of district cooling business</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(41,973</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation and amortization including nuclear fuel</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">350,762</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">338,311</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred fuel and purchased power</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">50,020</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(46,743</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred fuel and purchased power amortization</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(95,926</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">115,214</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Allowance for equity funds used during construction</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(16,417</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(11,919</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Real estate impairment charges</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">16,731</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">260,450</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Gain on real estate debt restructuring</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(14,403</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred income taxes</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">281,486</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">154,517</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Change in mark-to-market valuations</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,716</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(5,970</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Changes in current assets and liabilities:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Customer and other receivables</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(103,973</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(79,297</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:45px; text-indent:-15px">Accrued unbilled revenues</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(69,035</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(56,420</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Materials, supplies and fossil fuel</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">19,011</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(16,781</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:45px; text-indent:-15px">Other current assets</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(13,236</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">26,308</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Accounts payable</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">36,687</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(35,923</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:45px; text-indent:-15px">Accrued taxes and income tax receivable-net</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">56,851</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(120,878</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Other current liabilities</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">10,989</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">8,789</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Expenditures for real estate investments</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(514</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(2,410</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Gains and other changes in real estate assets</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,811</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(10,527</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Change in margin and collateral accounts &#151; assets</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(4,336</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,652</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Change in margin and collateral accounts &#151; liabilities</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(143,725</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,564</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Change in unrecognized tax benefits</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(72,649</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">92,720</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Change in other regulatory liabilities</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">40,121</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">92,598</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Change in other long-term assets</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(51,659</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(49,577</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Change in other long-term liabilities</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(28,547</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">15,491</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Net cash flow provided by operating activities</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">569,500</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">770,968</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">CASH FLOWS FROM INVESTING ACTIVITIES</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Capital expenditures</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(552,707</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(558,495</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Contributions in aid of construction</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">25,258</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">17,393</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Allowance for borrowed funds used during construction</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(12,553</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(8,568</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from sale of district cooling business</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">100,300</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from nuclear decommissioning trust sales</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">424,255</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">370,399</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Investment in nuclear decommissioning trust</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(442,567</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(386,743</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from sale of commercial real estate investments</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">71,174</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">30,847</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Other</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">9,621</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(1,404</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Net cash flow used for investing activities</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(377,219</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(536,571</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">CASH FLOWS FROM FINANCING ACTIVITIES</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Issuance of long-term debt</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">867,582</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Repayment of long-term debt</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(84,529</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(421,079</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Short-term borrowings and payments &#151; net</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(153,715</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(528,217</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Dividends paid on common stock</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(161,722</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(153,740</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Common stock equity issuance</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">255,156</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2,623</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Noncontrolling interests</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(3,286</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(3,393</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Other</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">6,352</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(2,594</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Net cash flow used for financing activities</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(141,744</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(238,818</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">NET INCREASE (DECREASE)&nbsp;IN CASH AND CASH EQUIVALENTS</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">50,537</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(4,421</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">145,378</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">105,245</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">CASH AND CASH EQUIVALENTS AT END OF PERIOD</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">195,915</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">100,824</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Supplemental disclosure of cash flow information</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Cash paid during the period for:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Income taxes, net of (refunds)</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(22,165</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(34,700</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:45px; text-indent:-15px">Interest, net of amounts capitalized</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">167,576</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">163,438</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt">See Notes to Pinnacle West&#146;s Condensed Consolidated Financial Statements. </DIV> <!-- /xbrl,cf --> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->7<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <!-- xbrl,ns --> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <!-- xbrl,n --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>1. Consolidation and Nature of Operations</B> </DIV> <!-- xbrl,body --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The unaudited condensed consolidated financial statements include the accounts of Pinnacle West and our subsidiaries: APS, SunCor, APS Energy Services Company, Inc. (&#147;APSES&#148;), and El Dorado Investment Company (&#147;El Dorado&#148;). Intercompany accounts and transactions between the consolidated companies have been eliminated. The unaudited condensed consolidated financial statements for APS include the accounts of APS and the Palo Verde sale leaseback variable interest entities (&#147;VIEs&#148;) (see Note 7 for further discussion). Our accounting records are maintained in accordance with accounting principles generally accepted in the United States of America (&#147;GAAP&#148;). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Weather conditions cause significant seasonal fluctuations in our revenues; therefore, results for interim periods do not necessarily represent results expected for the year. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In preparing the condensed consolidated financial statements, we have evaluated the events that have occurred after December&nbsp;31, 2009 through the date the financial statements were issued. Our condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments except as otherwise disclosed in the notes) that we believe are necessary for the fair presentation of our financial position, results of operations and cash flows for the periods presented. The December&nbsp;31, 2009 condensed consolidated balance sheet data was derived from audited financial statements, but does not include disclosures required by GAAP for audited annual statements. This quarterly report should be reviewed in conjunction with the audited financial statements included in the 2009 Form 10-K. These condensed consolidated financial statements and notes have been prepared consistently with the 2009 Form 10-K with the exception of certain line items that are presented in more detail on the Condensed Consolidated Statements of Cash Flows than were presented in the prior year. The prior year amounts were reclassified to conform to the current year presentation. Change in margin and collateral accounts &#151; assets is presented as a separate line item instead of as a single line item of change in other long-term assets as previously reported. Change in margin and collateral accounts &#151; liabilities is presented as a separate line item instead of as a single line item of change in other long-term liabilities as previously reported. There has also been a reclassification of certain prior-year amounts on our Condensed Consolidated Statements of Income, Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Cash Flows in accordance with accounting requirements for reporting discontinued operations (see Note 14) and amended accounting guidance on consolidation of VIEs (see Note 7). The following tables show the impacts of the reclassifications to prior year (previously reported) amounts (dollars in thousands): </DIV> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->8<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="44%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Amount</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">reported after</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Reclassifications</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">adoption of</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">as a result of the</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">amended VIE</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">adoption of</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">accounting</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">As</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">new VIE</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Reclassifications</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">guidance and</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD nowrap align="left"><B>Statement of Income for the</B></TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">previously</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">accounting</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">for discontinued</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">discontinued</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Three Months Ended September 30, 2009</B></TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">reported</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">guidance</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">operations</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">operations</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Operating Revenues</B></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Real estate segment</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">47,602</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(47,602</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other revenues</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">10,853</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(5,567</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">5,286</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Operating Expenses</B></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Real estate segment operations</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">25,074</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(25,074</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Real estate impairment charge</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">37,051</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(37,051</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Operations and maintenance</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">208,769</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(9,916</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(823</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">198,030</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation and amortization</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">102,246</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,927</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(1,165</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">103,008</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Taxes other than income taxes</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">34,111</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(96</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">34,015</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other expenses</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">8,014</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(2,981</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">5,033</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Other</B></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other income</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4,650</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(264</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4,386</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Interest Expense</B></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Interest charges</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">60,161</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,036</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(2,898</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">60,299</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Allowance for borrowed funds used during construction</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(1,423</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">74</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(1,349</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Income Taxes</B></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">103,507</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">6,271</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">109,778</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Income From Continuing Operations</B></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">188,065</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4,953</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">10,310</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">203,328</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Loss From Discontinued Operations</B></DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(1,995</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(10,310</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(12,305</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Net Income</B></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">186,070</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4,953</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">191,023</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Net Income (Loss) Attributable To Noncontrolling Interests</B></DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(582</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4,953</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4,371</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD style="border-bottom: 1px solid #000000"><DIV style="margin-left:0px; text-indent:-0px"><B>Statement of Income for the <BR> Nine Months Ended September&nbsp;30, 2009</B></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Operating Revenues</B></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Real estate segment</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">75,122</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(75,122</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other revenues</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">30,084</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(13,920</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">16,164</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Operating Expenses</B></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Real estate segment operations</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">71,413</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(71,413</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Real estate impairment charge</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">241,469</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(241,469</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Operations and maintenance</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">642,545</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(29,745</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(2,399</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">610,401</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation and amortization</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">302,166</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">5,778</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(3,878</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">304,066</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Taxes other than income taxes</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">101,126</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(338</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">100,788</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other expenses</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">22,214</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(6,352</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">15,862</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Other</B></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other income</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4,820</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(718</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4,102</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Interest Expense</B></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Interest charges</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">174,720</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">9,713</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(6,986</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">177,447</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Allowance for borrowed funds used during construction</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(8,568</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">250</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(8,318</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Income Taxes</B></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">48,082</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">89,512</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">137,594</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Income From Continuing Operations</B></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">96,099</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">14,254</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">153,313</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">263,666</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Loss From Discontinued Operations</B></DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(12,554</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(153,313</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(165,867</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Net Income</B></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">83,545</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">14,254</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">97,799</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Net Loss Attributable To Noncontrolling Interests</B></DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(14,944</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">14,254</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(690</TD> <TD nowrap>)</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->9<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="58%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Reclassifications as a</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Amounts reported</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">result of the adoption of</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">after adoption of</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">As previously</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">the new VIE accounting</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">amended VIE</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Balance Sheets &#151; December 31, 2009</B></TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">reported</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">guidance</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">accounting guidance</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Property, Plant and Equipment &#151; Palo Verde sale leaseback, net of accumulated depreciation</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">146,722</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">146,722</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred Debits &#151; Regulatory assets</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">781,714</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">31,447</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">813,161</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Current Liabilities &#151; Current maturities of long-term debt</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">277,693</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">25,783</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">303,476</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Long-Term Debt Less Current Maturities &#151; Palo Verde sale leaseback lessor notes</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">126,000</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">126,000</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred Credits and Other &#151; Other</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">200,015</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(55,938</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">144,077</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Equity &#151; Noncontrolling Interests</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">29,571</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">82,324</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">111,895</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="58%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Amounts reported</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Reclassifications as a</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">after adoption of</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">result of the adoption of</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">amended VIE</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">the new VIE accounting</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">accounting guidance</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">guidance and to conform</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">and to conform to</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD nowrap align="left"><B>Statement of Cash Flows for the</B></TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">As previously</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">to current year</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">current year</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Nine Months Ended September 30, 2009</B></TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">reported</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">presentation</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">presentation</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Cash Flows from Operating Activities</B></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Net income</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">83,545</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">14,254</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">97,799</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation and amortization including nuclear fuel</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">332,532</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">5,779</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">338,311</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other current liabilities</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">25,808</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(17,019</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">8,789</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Change in margin and collateral accounts-assets</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,652</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,652</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Change in margin and collateral accounts-liabilities</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,564</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,564</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other long-term assets</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(47,925</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(1,652</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(49,577</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other long-term liabilities</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">12,071</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,420</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">15,491</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Cash Flows from Financing Activities</B></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Repayment and acquisition of long-term debt</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(414,474</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(6,605</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(421,079</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Noncontrolling interests</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(3,393</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(3,393</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Supplemental Disclosure of Cash Flow Information</B></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Cash paid for Interest, Net of Amounts Capitalized</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">153,725</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">9,713</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">163,438</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->10<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <!-- xbrl,n --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>2. Long-term Debt and Liquidity Matters</B> </DIV> <!-- xbrl,body --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table shows principal payments due on Pinnacle West&#146;s and APS&#146; total long-term debt and capitalized lease requirements as of September&nbsp;30, 2010 (dollars in millions): </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="72%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Consolidated</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Consolidated</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD nowrap align="left" style="border-bottom: 1px solid #000000">Year</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Pinnacle West</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">APS</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">2010</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">23</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">17</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">2011</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">632</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">457</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">2012</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">478</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">478</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">2013</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">140</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">140</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">2014</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">503</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">503</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Thereafter</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,932</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,932</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,708</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,527</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Credit Facilities, Debt and Equity Issuances</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Pinnacle West and APS maintain committed revolving credit facilities in order to enhance liquidity and provide credit support for their commercial paper programs. During the first quarter of 2010, Pinnacle West and APS refinanced existing revolving credit facilities that would have otherwise matured in December&nbsp;2010. Since March&nbsp;2010, Pinnacle West and APS have accessed the commercial paper markets, which neither company had utilized since the third quarter of 2008 due to negative market conditions. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%"><B><I>Pinnacle West</I></B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On February&nbsp;12, 2010, Pinnacle West refinanced its $283&nbsp;million revolving credit facility that would have matured in December&nbsp;2010, and decreased the size of the facility to $200&nbsp;million. The new facility matures in February&nbsp;2013. Pinnacle West has the option to increase the amount of the facility up to a maximum of $300&nbsp;million upon the satisfaction of certain conditions and with the consent of the lenders. Pinnacle West will use the facility for general corporate purposes, commercial paper support and for the issuance of letters of credit. Interest rates are based on Pinnacle West&#146;s senior unsecured debt credit ratings. As a result of the downsized credit facility, the Company also reduced the size of its commercial paper program to $200&nbsp;million from $250&nbsp;million. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">At September&nbsp;30, 2010, the $200&nbsp;million credit facility was available to support the issuance of up to $200&nbsp;million in commercial paper or for bank borrowings, including issuances of letters of credit up to $100&nbsp;million. At September&nbsp;30, 2010, Pinnacle West had no outstanding borrowings under this credit facility, no commercial paper borrowings and no outstanding letters of credit. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In April&nbsp;2010, Pinnacle West issued 6,900,000 shares of common stock at an offering price of $38.00 per share, resulting in net proceeds of approximately $253&nbsp;million. Pinnacle West contributed all of the net proceeds from this offering into APS in the form of equity infusions. APS has used these contributions to repay short-term indebtedness, to finance capital expenditures and for other general corporate purposes. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In June&nbsp;2010, Pinnacle West received approximately $100&nbsp;million related to the sale of APSES&#146; district cooling business. The net proceeds were used to repay short-term indebtedness. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->11<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%"><B><I>APS</I></B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On February&nbsp;12, 2010, APS refinanced its $377&nbsp;million credit facility that would have matured in December&nbsp;2010, and increased the size of the facility to $500&nbsp;million. The new credit facility terminates in February&nbsp;2013. APS has the option to increase the amount of the facility up to a maximum of $700&nbsp;million upon the satisfaction of certain conditions and with the consent of the lenders. APS will use the facility for general corporate purposes, commercial paper support and for the issuance of letters of credit. Interest rates are based on APS&#146; senior unsecured debt credit ratings. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">At September&nbsp;30, 2010, APS had two credit facilities totaling $989&nbsp;million, including the $500 million credit facility described above and a $489&nbsp;million facility that terminates in September 2011. These facilities are available either to support the issuance of up to $250&nbsp;million in commercial paper or for bank borrowings, including issuances of letters of credit up to $739 million. At September&nbsp;30, 2010, APS had no borrowings outstanding under any of its credit facilities and no outstanding commercial paper. A $20&nbsp;million letter of credit was issued under APS&#146; $489&nbsp;million credit facility in the second quarter of 2010. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On July&nbsp;13, 2010, APS changed the interest rate mode for the approximately $33&nbsp;million of Coconino County, Arizona Pollution Control Corporation Pollution Control Revenue Bonds (Arizona Public Service Company Navajo Project) 1994 Series&nbsp;A, due 2029. The rate period for the bonds changed from a daily rate mode, supported by a letter of credit, to a three-year term rate mode that will bear interest at a rate of 3.625% per annum for three years. The letter of credit was terminated in connection with this change, and there is no bank or other third-party credit support for the bonds in the term rate mode. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On August&nbsp;10, 2010, APS changed the letter of credit supporting the approximately $17&nbsp;million of Coconino County, Arizona Pollution Control Corporation Pollution Control Revenue Bonds (Arizona Public Service Company Project) Series&nbsp;1998, due 2033. The bonds were in a daily rate mode supported by a letter of credit and remain in a daily rate mode, supported by a new three-year letter of credit expiring in August&nbsp;2013. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On October&nbsp;12, 2010, APS changed the interest rate mode for the approximately $147&nbsp;million of City of Farmington, New Mexico Pollution Control Revenue Refunding Bonds (Arizona Public Service Company Four Corners Project) 1994 Series&nbsp;A and 1994 Series&nbsp;B, due 2024 and City of Farmington, New Mexico Pollution Control Revenue Bonds (Arizona Public Service Company Four Corners Project) 1994 Series&nbsp;C, due 2024. The rate period for the 1994 Series&nbsp;A bonds and the 1994 Series&nbsp;B bonds changed from a daily rate mode, supported by letters of credit, to a term rate mode to maturity with an optional redemption after year ten that will bear interest at a rate of 4.70% per annum until maturity in 2024 unless the optional redemption is exercised by APS. The rate period for the 1994 Series&nbsp;C bonds changed from a daily rate mode, supported by a letter of credit, to a three-year term rate mode that will bear interest at a rate of 2.875% per annum until October 2013. The letters of credit supporting each of these three series of bonds were terminated in connection with these changes, and there is no bank or other third-party credit support for any of these bonds. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On January&nbsp;1, 2010, due to the adoption of amended accounting guidance relating to VIEs, APS began consolidating the Palo Verde Lessor Trusts (see Note 7) and, as a result of consolidation of these VIEs, APS has reported the Lessor Trusts&#146; long-term debt on its Condensed Consolidated Balance Sheets. Interest rates on these debt instruments are 8% and are fixed for the remaining life of the debt. As of September&nbsp;30, 2010, approximately $30&nbsp;million was classified as current maturities of long-term debt and $113&nbsp;million was classified as long-term debt relating to these VIEs. These debt instruments mature on December&nbsp;30, 2015 and have sinking fund features that are serviced by the lease payments. See Note 7 for additional discussion of the VIEs. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->12<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%"><B><I>SunCor</I></B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In July&nbsp;2010, SunCor sold land parcels, commercial assets and a master planned home-building community for approximately $70&nbsp;million, which approximated the carrying value of these assets, resulting in a net gain of zero. In connection with this sale, SunCor negotiated a restructuring of certain of its credit facilities, including its principal loan facility. The debt restructuring resulted in an after-tax gain of approximately $9&nbsp;million, which was recognized in the third quarter of 2010. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">At September&nbsp;30, 2010, SunCor had approximately $22&nbsp;million of assets on its balance sheet classified as assets held for sale. These assets consisted of $18&nbsp;million of consolidated VIEs (see Note 7), master planned home-building communities and golf courses. Because it is expected that SunCor will dispose of these assets within the next 12&nbsp;months, they are classified as assets held for sale on the balance sheet. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">At September&nbsp;30, 2010, SunCor had $6&nbsp;million in debt outstanding, a portion of which is in default. Neither Pinnacle West nor any of its other subsidiaries has guaranteed any SunCor indebtedness. A SunCor debt default would not result in a cross-default of any of the debt of Pinnacle West or any of its other subsidiaries. While there can be no assurances as to the ultimate outcome of this matter, Pinnacle West does not believe that SunCor&#146;s inability to repay remaining debt outstanding would have a material adverse impact on Pinnacle West&#146;s cash flows or liquidity. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">As of September&nbsp;30, 2010, SunCor could not transfer any cash dividends to Pinnacle West. This restriction does not affect Pinnacle West&#146;s ability to meet its ongoing capital requirements. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Debt Provisions</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">An existing ACC order requires APS to maintain a common equity ratio of at least 40%. As defined in the ACC order, the common equity ratio is total shareholder equity divided by the sum of total shareholder equity and long-term debt, including current maturities of long-term debt. At September&nbsp;30, 2010, APS&#146; common equity ratio, as defined, was 53%. Its total shareholder equity was approximately $3.8&nbsp;billion, and total capitalization was approximately $7.2&nbsp;billion. APS would be prohibited from paying dividends if the payment would reduce its total shareholder equity below approximately $2.9&nbsp;billion, assuming APS&#146; total capitalization remains the same. This restriction does not materially affect Pinnacle West&#146;s ability to meet its ongoing capital requirements. </DIV> <!-- xbrl,n --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>3. Regulatory Matters</B> </DIV> <!-- xbrl,body --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>2008 General Retail Rate Case Impacts</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On December&nbsp;30, 2009, the ACC issued an order approving a settlement agreement (&#147;Settlement Agreement&#148;) entered into by APS and twenty-one other parties to its general retail rate case, which was originally filed in March&nbsp;2008. The Settlement Agreement contains on-going requirements, commitments and authorizations, including the following: </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="4%" style="background: transparent">&nbsp;</TD> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>Revenue accounting treatment for line extension payments received for new or upgraded service from January&nbsp;1, 2010 through year end 2012 (or until new rates are established in APS&#146; next general rate case, if that is before the end of 2012), which resulted in projected estimates of increased revenues of $23&nbsp;million, $25&nbsp;million and $49&nbsp;million, respectively (as of September&nbsp;30, 2010, estimates for the 2010&nbsp;year are expected to be $17 &#151; $21&nbsp;million);</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="4%" style="background: transparent">&nbsp;</TD> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>An authorized return on common equity of 11%;</TD> </TR> </TABLE> </DIV> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->13<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="4%" style="background: transparent">&nbsp;</TD> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>A capital structure comprised of 46.2% debt and 53.8% common equity;</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="4%" style="background: transparent">&nbsp;</TD> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>A commitment from APS to reduce average annual operational expenses by at least $30 million from 2010 through 2014;</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="4%" style="background: transparent">&nbsp;</TD> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>Authorization and requirements of equity infusions into APS of at least $700&nbsp;million during the period beginning June&nbsp;1, 2009 through December&nbsp;31, 2014 ($253&nbsp;million of which was infused into APS from proceeds of a Pinnacle West equity issuance in the second quarter of 2010 (see Note 2)); and</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="4%" style="background: transparent">&nbsp;</TD> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>Various modifications to the existing energy efficiency, demand-side management and renewable energy programs that require APS to, among other things, expand its conservation and demand-side management programs and its use of renewable energy, as well as allow for concurrent recovery of renewable energy expenses and provide for more concurrent recovery of demand-side management costs and incentives.</TD> </TR> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The parties also agreed to a rate case filing plan in which APS is prohibited from filing its next two general rate cases until on or after June&nbsp;1, 2011 and June&nbsp;1, 2013, respectively, unless certain extraordinary events occur. Subject to the foregoing, APS may not request its next general retail rate increase to be effective prior to July&nbsp;1, 2012. APS currently expects it will file its next rate case in June&nbsp;2011. The parties agreed to use good faith efforts to process these subsequent rate cases within twelve months of sufficiency findings from the ACC staff, which generally occur within 30&nbsp;days after the filing of a rate case. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Cost Recovery Mechanisms</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">APS has received regulatory decisions that allow for more timely recovery of certain costs through the following recovery mechanisms. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>Renewable Energy Standard. </I></B>In 2006, the ACC approved the Arizona Renewable Energy Standard and Tariff (&#147;RES&#148;). Under the RES, electric utilities that are regulated by the ACC must supply an increasing percentage of their retail electric energy sales from eligible renewable resources, including solar, wind, biomass, biogas and geothermal technologies. In order to achieve these requirements, the ACC allows APS to include a RES surcharge on customer bills to recover the approved amounts for use on renewable energy projects. Each year APS is required to file a five-year implementation plan with the ACC and seek approval for the upcoming year&#146;s RES funding amount. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">During 2009, APS filed its annual RES implementation plan, covering the 2010-2014 timeframe and requesting 2010 RES funding approval. The plan provided for the acquisition of renewable generation in compliance with requirements through 2014, and requested RES funding of $86.7&nbsp;million for 2010, which was later approved by the ACC. APS also sought various other determinations in its plan, including approval of the AZ Sun Program and the Community Power Project in Flagstaff, Arizona described below. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->14<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On March&nbsp;3, 2010, the ACC approved the AZ Sun Program, which contemplates the addition of 100 megawatts (&#147;MW&#148;) of APS-owned solar resources through 2014. Through this program, APS plans to invest up to $500&nbsp;million in solar photovoltaic projects across Arizona, which APS will acquire through competitive procurement processes. The costs associated with the first 50 MW under this program will be recovered initially through the RES until such time as the costs are recovered in base rates. The costs of the second 50 MW will be recovered through a mechanism to be determined in APS&#146; next retail rate case. As of September&nbsp;30, 2010, APS had signed two contracts to develop 33 MW of photovoltaic power for approximately $150&nbsp;million under the AZ Sun Program. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On April&nbsp;1, 2010, the ACC approved the Community Power Project, a pilot program in which APS will own, operate and receive energy from approximately 1.5 MW of solar panels on the rooftops of up to 200 residential and business customers located within a certain test area. Costs of the program will be recovered through the RES until such time as the costs are recovered in base rates. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On July&nbsp;1, 2010, APS filed its annual RES implementation plan, covering the 2011-2015 timeframe and requesting 2011 RES funding of $96.4&nbsp;million. The 2011 Plan addressed enhancements to the residential distributed energy incentive program based on high customer participation and additional programs offered in response to ACC workshops on &#147;feed in tariffs,&#148; which provide opportunities for streamlined development of certain renewable projects. On October&nbsp;13, 2010, APS filed an adjusted RES implementation plan to reflect the following items, among others: 1) increased clarity relating to customer project in-service dates and related budget revisions; 2) AZ Sun Program updates; and 3) addition of 10 MW of biomass capacity. In addition, APS lowered its 2011 RES funding request to $92.5&nbsp;million primarily as a result of an improved understanding of the timing of incentives payable for commercial projects. APS expects the ACC to vote on the 2011 Plan in the fourth quarter of 2010. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>Demand-Side Management Adjustor Charge (&#147;DSMAC&#148;). </I></B>The Settlement Agreement requires APS to submit an annual Energy Efficiency Implementation Plan for review by and approval of the ACC. On July&nbsp;15, 2009, APS filed its initial Energy Efficiency Implementation Plan, requesting approval by the ACC of programs and program elements for which APS had estimated a budget in the amount of $49.9&nbsp;million for 2010. APS received ACC approval of all of its proposed programs and implemented the new DSMAC on March&nbsp;1, 2010. A surcharge was added to customer bills in order to recover these estimated amounts for use on certain demand-side management programs. The surcharge allows for the recovery of energy efficiency expenses and any earned incentives. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The ACC approved recovery of all 2009 program costs plus incentives. The change from program cost recovery on a historical basis to recovery on a concurrent basis, as authorized in the Settlement Agreement, resulted in this one-time need to address two years (2009 and 2010) of cost recovery. As requested by APS, 2009 program cost recovery is to be spread over a three-year period. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On June&nbsp;1, 2010, APS filed its 2011 Energy Efficiency Implementation Plan. In order to meet the energy efficiency goal for 2011 established by the Settlement Agreement of annual energy savings of 1.25%, expressed as a percent of total energy resources to meet retail load, APS proposed a total budget for 2011 of $79.2&nbsp;million. If this plan is approved by the ACC as proposed, and when added to the amortization of 2009 costs discussed above less the $10&nbsp;million already being recovered in general rates, the DSMAC would recover approximately $74.8&nbsp;million over a twelve month period beginning March&nbsp;1, 2011. These amounts do not include $1.3&nbsp;million for an electric vehicle charging station program submitted to the ACC for approval on September&nbsp;30, 2010. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->15<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>PSA Mechanism and Balance. </I></B>The power supply adjustor (&#147;PSA&#148;) provides for the adjustment of retail rates to reflect variations in retail fuel and purchased power costs from the &#147;Base Fuel Rate,&#148; which is currently $0.0376 per kilowatt-hour (&#147;kWh&#148;). The following table shows the changes in the deferred fuel and purchased power regulatory asset (liability)&nbsp;for the nine-month periods ended September&nbsp;30, 2010 and 2009 (dollars in millions): </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="72%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Nine Months Ended</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Beginning balance</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(87</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">8</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred fuel and purchased power costs-current period</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(50</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">47</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Amounts refunded (recovered)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">96</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(115</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Ending balance</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(41</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(60</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The PSA rate for the current PSA year is ($0.0045) per kWh. Since the 2010 PSA adjustment was a reduction of the PSA rate, the ACC accelerated the 2010 adjustment from the standard PSA year start date of February 1<SUP style="FONT-size: 85%; vertical-align: text-top">st</SUP> to January 1<SUP style="FONT-size: 85%; vertical-align: text-top">st</SUP> to coincide with the increase in retail rates resulting from the ACC&#146;s decision in the general retail rate case, causing a minimal net impact on residential bills. This accelerated 2010 adjustment will remain in effect until February&nbsp;1, 2011. The regulatory liability at September&nbsp;30, 2010 reflects lower average prices and the seasonal nature of fuel and purchased power costs. Any uncollected (overcollected)&nbsp;deferrals during the 2010 PSA year will be included in the historical component of the PSA rate for the PSA year beginning February&nbsp;1, 2011. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The PSA rate for the PSA year that began February&nbsp;1, 2009 was $0.0053 per kWh. The PSA rate may not be increased or decreased more than $0.004 per kWh in a year without permission of the ACC. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>Transmission Rates and Transmission Cost Adjustor</I></B><B>. </B>In July&nbsp;2008, the United States Federal Energy Regulatory Commission (&#147;FERC&#148;) approved an Open Access Transmission Tariff for APS to move from fixed rates to a formula rate-setting methodology in order to more accurately reflect and recover the costs that APS incurs in providing transmission services. A large portion of the rate represents charges for transmission services to serve APS&#146; retail customers (&#147;Retail Transmission Charges&#148;). In order to recover the Retail Transmission Charges, APS must file an application with, and obtain approval from, the ACC under the transmission cost adjustor (&#147;TCA&#148;) mechanism, by which changes in Retail Transmission Charges can be reflected in APS&#146; retail rates. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The formula rate is updated each year effective June 1 on the basis of APS&#146; actual cost of service, as disclosed in APS&#146; FERC Form&nbsp;1 report for the previous fiscal year. Items to be updated include actual capital expenditures made as compared with previous projections, transmission revenue credits and other items. The resolution of proposed adjustments can result in significant volatility in the revenues to be collected. APS reviews the proposed formula rate filing amounts with the ACC staff. Any items or adjustments which are not agreed to by APS and the ACC staff can remain in dispute until settled or litigated at FERC. Settlement or litigated resolution of disputed issues could require an extended period of time and have a significant effect on the Retail Transmission Charge because any adjustment, though applied prospectively, may be calculated to account for previously over-collected amounts. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->16<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Effective June&nbsp;1, 2010, APS&#146; annual wholesale transmission rates for all users of its transmission system were reduced by approximately $12&nbsp;million in accordance with the FERC-approved formula as a result of lower costs reflected in the formula. Approximately $10&nbsp;million of this revenue reduction relates to transmission services used for APS&#146; retail customers. On May&nbsp;20, 2010, APS filed with the ACC an application for the related reduction of its TCA rate. The ACC approved the TCA reduction on July&nbsp;27, 2010. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"> <B><I>Decoupling</I></B>.&nbsp;On October 18, 2010, the Chairman of the ACC issued a draft decoupling policy statement. Decoupling refers to a ratemaking design which reduces or removes the linkage between sales and utility revenues and/or profits, reducing utility disincentives to the adoption of programs that benefit customers by saving energy. Mechanically, decoupling compares actual versus authorized revenues or revenue per customer over a period and either credits or collects any differences from customers in a subsequent period. The draft policy is supportive of decoupling using a revenue-per-customer methodology, which is the mechanism APS and a number of other parties support because it recognizes increased costs associated with additional customers. The draft policy would allow a utility to file a decoupling plan in its next general rate case. Subsequent steps by the ACC prior to approving any policy statement will likely depend on the nature and extent of the comments received from various stakeholders. </DIV> <!-- xbrl,n --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>4. Retirement Plans and Other Benefits</B> </DIV> <!-- xbrl,body --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Pinnacle West sponsors a qualified defined benefit and account balance pension plan, a non-qualified supplemental excess benefit retirement plan, and other postretirement benefit plans for the employees of Pinnacle West and our subsidiaries. Pinnacle West uses a December&nbsp;31 measurement date for its pension and other postretirement benefit plans. The market-related value of our plan assets is their fair value at the measurement date. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On March&nbsp;23, 2010, the President signed into law comprehensive health care reform legislation under the Patient Protection and Affordable Care Act (the &#147;Act&#148;). One feature of the Act is the elimination of the tax deduction for prescription drug costs that are reimbursed as part of the Medicare Part&nbsp;D subsidy. Although this tax increase does not take effect until 2013, we are required to recognize the full accounting impact in our financial statements in the period in which the Act is signed. In accordance with accounting for regulated companies, the loss of this deduction is substantially offset by a regulatory asset that will be recovered through future electric revenues. In the first quarter of 2010, Pinnacle West charged regulatory assets and liabilities for a total of $42&nbsp;million, with a corresponding increase in accumulated deferred income tax liabilities, to reflect the impact of this change in tax law. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->17<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table provides details of the plans&#146; net periodic benefit costs and the portion of these costs charged to expense (including administrative costs and excluding amounts capitalized as overhead construction or billed to electric plant participants) (dollars in millions): </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="36%">&nbsp;</TD> <TD width="2%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="4%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="2%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="4%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="2%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="4%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="2%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="4%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="2%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="4%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="2%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="4%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="2%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="4%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="2%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="4%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000">Pension Benefits</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000">Other Benefits</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Three Months</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Nine Months</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Three Months</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Nine Months</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Ended</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Ended</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Ended</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Ended</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Service cost &#151; benefits earned during the period</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">14</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">13</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">42</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">40</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">4</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">4</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">14</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">14</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Interest cost on benefit obligation</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">31</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">29</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">92</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">88</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">11</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">10</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">32</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">29</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Expected return on plan assets</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(31</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(29</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(93</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(87</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(9</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(9</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(29</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(26</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Amortization of:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Transition obligation</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Prior service cost</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Net actuarial loss</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">5</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">15</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">11</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">7</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">8</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Net periodic benefit cost</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">19</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">18</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">57</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">54</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">8</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">9</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">24</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">27</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Portion of cost charged to expense</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">10</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">9</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">29</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">26</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">4</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">4</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">12</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">13</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">APS&#146; share of cost charged to expense</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">9</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">8</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">28</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">25</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">4</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">4</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">12</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">12</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Contributions</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The required minimum contribution to our pension plan is zero in 2010. During the first quarter of 2010, we made a voluntary contribution of $100&nbsp;million to our pension plan. The contribution to our other postretirement benefit plans in 2010 is estimated to be approximately $15 million. APS and other subsidiaries fund their share of the contributions. APS&#146; share is approximately 98% of both plans. </DIV> <!-- xbrl,n --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>5. Business Segments</B> </DIV> <!-- xbrl,body --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Pinnacle West&#146;s two reportable business segments are: </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="4%" style="background: transparent">&nbsp;</TD> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>our regulated electricity segment, which consists of traditional regulated retail and wholesale electricity businesses (primarily retail and wholesale sales supplied to traditional cost-based rate regulation (&#147;Native Load&#148;) customers) and related activities and includes electricity generation, transmission and distribution; and</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="4%" style="background: transparent">&nbsp;</TD> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>our real estate segment, which consists of SunCor&#146;s real estate development and investment activities.</TD> </TR> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In July&nbsp;2010, SunCor sold land parcels, commercial assets and a master planned home-building community. It is expected that SunCor will dispose of its remaining assets within the next 12 months. As a result, they are classified as assets held for sale on the balance sheet at September 30, 2010 and all of SunCor&#146;s operations are reflected in discontinued operations. While segment reporting is not required for discontinued operations, Pinnacle West continues to provide the information below, due to the significant impacts of real estate impairments in 2009. See Note 14 &#151; Discontinued Operations. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->18<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Financial data for the three and nine months ended September&nbsp;30, 2010 and 2009 and at September&nbsp;30, 2010 and December&nbsp;31, 2009 is provided as follows (dollars in millions): </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="44%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Three Months Ended</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Nine Months Ended</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Operating revenues:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Regulated electricity segment</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">1,116</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">1,084</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">2,527</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">2,499</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">All other (a)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">23</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">5</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">53</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">16</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">1,139</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">1,089</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">2,580</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">2,515</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)&nbsp;attributable to common shareholders:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Regulated electricity segment</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">225</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">200</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">320</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">257</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Real estate segment</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">8</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(12</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(6</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(153</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">All other (a)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(1</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">29</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(6</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">234</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">187</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">343</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">98</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="72%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">As of</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">As of</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">September 30, 2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">December 31, 2009</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Assets:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Regulated electricity segment</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">12,324</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">11,691</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Real estate segment</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">41</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">161</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">All other (a)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">70</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">134</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">12,435</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">11,986</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR style="font-size: 6pt"> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="96">&nbsp;</TD> </TR> <TR valign="top"> <TD nowrap align="left">(a)</TD> <TD>&nbsp;</TD> <TD>Includes activities related to APSES and El Dorado. None of the activities of either of these companies constitutes a reportable segment. All other also includes the sale of APSES&#146; district cooling business, which resulted in an after-tax gain of $25&nbsp;million for the nine months ended September&nbsp;30, 2010. See Note 14 &#151; Discontinued Operations.</TD> </TR> </TABLE> <!-- xbrl,n --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>6. Income Taxes</B> </DIV> <!-- xbrl,body --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Pinnacle West expects to receive approximately $132&nbsp;million of cash tax benefits related to SunCor&#146;s strategic asset sales (see Note 16), which will not be fully realized until all of the asset sales are completed. Approximately $7&nbsp;million of these benefits were recorded in the nine months ended September&nbsp;30, 2010 as reductions to income tax expense related to the current impairment charges. The additional $125&nbsp;million of tax benefits were recorded as reductions to income tax expense related to SunCor impairment charges recorded on or before December&nbsp;31, 2009. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The $88&nbsp;million income tax receivables on the Condensed Consolidated Balance Sheets represent the anticipated refunds related to an APS tax accounting method change approved by the Internal Revenue Service (&#147;IRS&#148;) in the third quarter of 2009 and the current year tax benefits related to the SunCor strategic asset sales that closed in 2010. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->19<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">During the first quarter of 2010, the Company reached a settlement with the IRS with regard to the examination of tax returns for the years ended December&nbsp;31, 2005 through 2007. As a result of this settlement, net uncertain tax positions decreased $62&nbsp;million, including approximately $3.5 million which decreased our effective tax rate. Additionally, the settlement resulted in the recognition of net interest benefits of approximately $3&nbsp;million through the effective tax rate. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">As of September&nbsp;30, 2010, the tax year ended December&nbsp;31, 2008 and all subsequent tax years remain subject to examination by the IRS. With few exceptions, we are no longer subject to state income tax examinations by tax authorities for years before 1999. </DIV> <!-- xbrl,n --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>7. Variable Interest Entities</B> </DIV> <!-- xbrl,body --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On January&nbsp;1, 2010 we adopted amended accounting guidance relating to VIEs. This amended guidance significantly changed the consolidation model for VIEs. Under the prior guidance the consolidation model considered risk absorption using a quantitative approach when determining the primary beneficiary. The consolidation model under the new guidance requires a qualitative assessment and focuses on the power to direct activities of the VIE when determining the primary beneficiary. As a result of applying this qualitative assessment, we have determined that APS is the primary beneficiary of certain VIEs, and is therefore required to consolidate these VIEs. Prior to adopting this new guidance, APS was not considered the primary beneficiary of these VIEs and did not consolidate these entities. We have adopted this guidance using retrospective application and have adjusted prior periods presented to reflect consolidation of the VIEs in those periods. Further discussion follows regarding the impact of the consolidation. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>APS VIEs</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In 1986, APS entered into agreements with three separate VIE lessor trusts in order to sell and lease back interests in Palo Verde Nuclear Generating Station (&#147;Palo Verde&#148;) Unit 2 and related common facilities. The VIE lessor trusts are single-asset leasing entities. APS will pay approximately $49&nbsp;million per year for the years 2010 to 2015 related to these leases. The leases do not contain fixed price purchase options or residual value guarantees. However, the lease agreements include fixed rate renewal periods which may have a significant impact on the VIEs&#146; economic performance. We have concluded that these fixed rate renewal periods may give APS the ability to utilize the asset for a significant portion of the asset&#146;s economic life, and therefore provide APS with the power to direct activities of the VIEs that most significantly impact the VIEs&#146; economic performance. In addition to the fixed rate renewal periods, our primary beneficiary analysis also considered that APS is the operating agent for Palo Verde, is obligated to decommission the leased assets and has fair value purchase options. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Under the previous quantitative VIE consolidation model, APS was not considered the primary beneficiary of the lessor trusts, as APS did not absorb the majority of the entities&#146; expected losses or did not receive a majority of the residual returns. The arrangements were previously accounted for as operating leases. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->20<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Consolidation of these VIEs eliminates the lease accounting we previously reported and results in changes in our consolidated assets, debt, equity, and net income. Assets of the VIEs are restricted and may only be used to settle the VIEs&#146; debt obligations and for payment to the noncontrolling interest holders. The creditors of the VIEs have no recourse to the assets of APS or Pinnacle West. As a result of consolidation we have eliminated rent expense, and have recognized depreciation and interest expense, resulting in an increase in net income for the three and nine months ended September&nbsp;30, 2010 of $5&nbsp;million and of $15&nbsp;million, respectively, entirely attributable to the noncontrolling interests. Income attributable to Pinnacle West shareholders remains the same. Consolidation of these VIEs also results in changes to our Condensed Consolidated Statements of Cash Flows, but does not impact net cash flows. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our Condensed Consolidated Balance Sheets at September&nbsp;30, 2010 include the following amounts relating to the VIEs (in millions): </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="86%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">September 30,</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Property plant and equipment, net of accumulated depreciation</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">140</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term debt including current maturities</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">143</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Equity- Noncontrolling interests</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">94</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">For regulatory ratemaking purposes the leases continue to be treated as operating leases, and as a result we have recorded a regulatory asset of $32&nbsp;million as of September&nbsp;30, 2010. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">APS is exposed to losses relating to these lessor trust VIEs upon the occurrence of certain events that APS does not consider to be reasonably likely to occur. Under certain circumstances (for example, the Nuclear Regulatory Commission (&#147;NRC&#148;) issuing specified violation orders with respect to Palo Verde or the occurrence of specified nuclear events), APS would be required to make specified payments to the VIEs&#146; noncontrolling equity participants, assume the VIEs&#146; debt, and take title to the leased Unit 2 interests, which, if appropriate, may be required to be written down in value. If such an event had occurred as of September&nbsp;30, 2010, APS would have been required to pay the noncontrolling equity participants approximately $152&nbsp;million and assume $143&nbsp;million of debt. Since APS now consolidates the VIEs, the debt APS would be required to assume is already reflected in our Condensed Consolidated Balance Sheets. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We also have certain long-term purchased power agreements to purchase substantially all of an entity&#146;s output from a specified facility for a specified period. We have evaluated these arrangements under the VIE accounting guidance and have determined that these agreements do not represent variable interests. If these agreements had been deemed variable interests, we would not be considered the primary beneficiary, as we do not have the power to direct the entities&#146; activities in a manner that would significantly impact their economic performance and, therefore, would not consolidate the entities. The adoption of the amended accounting guidance has not changed how we account for these arrangements. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>SunCor VIEs</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">SunCor is the primary beneficiary of certain land development trust arrangements and, accordingly, consolidates these VIEs. We have determined that SunCor is the primary beneficiary of these VIEs because SunCor controls the activities related to the development of the land held in the trusts. Our adoption of amended VIE accounting guidance has not changed our accounting treatment of the SunCor VIEs. Our Condensed Consolidated Balance Sheets reflect $18&nbsp;million of assets and $18&nbsp;million of noncontrolling equity interests relating to these arrangements at September&nbsp;30, 2010. Our Condensed Consolidated Balance Sheets reflect $29&nbsp;million of assets and $29&nbsp;million of noncontrolling equity interests related to these arrangements at December&nbsp;31, 2009. The assets relating to these VIEs consist strictly of land, all of which is restricted and may only be used for payment to the noncontrolling interests. We have not provided, and are not required to provide, financing or other financial support to these entities. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->21<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <!-- xbrl,n --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>8. Derivative and Energy Trading Accounting</B> </DIV> <!-- xbrl,body --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We are exposed to the impact of market fluctuations in the commodity price and transportation costs of electricity, natural gas, coal, emissions allowances and in interest rates. We manage risks associated with these market fluctuations by utilizing various derivative instruments, including futures, forwards, options and swaps. As part of our overall risk management program, we may use such instruments to hedge purchases and sales of electricity, fuels, and emissions allowances and credits. Derivative instruments that are designated as cash flow hedges are used to limit our exposure to cash flow variability on forecasted transactions. The changes in market value of such contracts have a high correlation to price changes in the hedged transactions. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our derivative instruments are accounted for at fair value and are presented on the Condensed Consolidated Balance Sheets as &#147;Assets/Liabilities from Risk Management Activities&#148; (see Note 15 for a discussion of fair value measurements). Derivative instruments for the physical delivery of purchase and sale quantities transacted in the normal course of business qualify for the normal purchase and sales scope exception and are accounted for under the accrual method of accounting. Due to the scope exception, these derivative instruments are excluded from our derivative instrument discussion and disclosures below. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We enter into derivative instruments for economic hedging purposes. While we believe the economic hedges mitigate exposure to fluctuations in commodity prices, some of these instruments may not meet the specific hedge accounting requirements and are not designated as accounting hedges. Economic hedges not designated as accounting hedges are recorded at fair value on our balance sheet with changes in fair value recognized in the statement of income as incurred. These instruments are included in the &#147;non-designated hedges&#148; discussion and disclosure below. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Hedge effectiveness is the degree to which the derivative instrument contract and the hedged item are correlated and is measured based on the relative changes in fair value between the derivative instrument contract and the hedged item over time. We assess hedge effectiveness both at inception and on a continuing basis. These assessments exclude the time value of certain options. For accounting hedges that are deemed an effective hedge, the effective portion of the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive income (&#147;AOCI&#148;) and reclassified into earnings in the same period during which the hedged transaction affects earnings. We recognize in current earnings the gains and losses representing hedge ineffectiveness, and the gains and losses on any hedge components which are excluded from our effectiveness assessment. As of September&nbsp;30, 2010, we hedged the majority of certain exposures to the price variability of commodities for a maximum of 39&nbsp;months. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In the electricity business, some contracts to purchase energy are netted against other contracts to sell energy. This is called &#147;book-out&#148; and usually occurs in contracts that have the same terms (quantities and delivery points) and for which power does not flow. We net these book-outs, which reduces both revenues and fuel and purchased power costs in our Condensed Consolidated Statements of Income, but this does not impact our financial condition, net income or cash flows. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->22<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">For its regulated operations, APS defers for future rate treatment approximately 90% of unrealized gains and losses on certain derivatives pursuant to the PSA mechanism that would otherwise be recognized in income. Realized gains and losses on derivatives are deferred in accordance with the PSA to the extent the amounts are above or below the portion of APS&#146; retail base rates attributable to fuel and purchased power costs (&#147;Base Fuel Rate&#148;), which is currently $0.0376 per kWh (see Note 3). Gains and losses from derivatives in the following tables represent the amounts reflected in income before the effect of PSA deferrals. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">As of September&nbsp;30, 2010, we had the following outstanding gross notional amount of derivatives, which represent both purchases and sales (does not reflect net position): </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="72%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="11%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Commodity</B></TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="5" style="border-bottom: 1px solid #000000"><B>Quantity</B></TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Power</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">14,149,591</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left" valign="bottom"><FONT style="white-space: nowrap">megawatt hours</FONT></TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Gas</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">149,026,687</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left" valign="bottom">MMBTU (a)</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR style="font-size: 6pt"> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="96">&nbsp;</TD> </TR> <TR valign="top"> <TD nowrap align="left">(a)</TD> <TD>&nbsp;</TD> <TD>&#147;MMBTU&#148; is one million British thermal units.</TD> </TR> </TABLE> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Derivative Instruments in Designated Accounting Hedging Relationships</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table provides information about gains and losses from derivative instruments in designated accounting hedging relationships and their impact on our Condensed Consolidated Statements of Income during the three and nine months ended September&nbsp;30, 2010 and 2009 (dollars in thousands): </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="29%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="20%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="7%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="7%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="7%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="7%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Three Months Ended</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Nine Months Ended</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center">Financial Statement</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD nowrap align="left" style="border-bottom: 1px solid #000000">Commodity Contracts</TD> <TD>&nbsp;</TD> <TD nowrap align="center" style="border-bottom: 1px solid #000000">Location</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <tr> <TD>&nbsp;</TD> </tr> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Amount of Gain (Loss) Recognized in AOCI on Derivative Instruments (Effective Portion)</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="bottom"><DIV style="margin-left:15px; text-indent:-15px">Accumulated other comprehensive loss-derivative instruments</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(67,856</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">4,959</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(168,110</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(128,035</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="padding-top: 0em"> <TD><DIV style="margin-left:15px; text-indent:-15px">Amount of Loss Reclassified from AOCI into Income (Effective Portion Realized)</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="bottom"><DIV style="margin-left:15px; text-indent:-15px">Regulated electricity segment fuel and purchased power</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(59,801</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(81,660</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(102,130</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(154,990</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="padding-top: 0em; background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Amount of Gain (Loss) Recognized in Income from Derivative Instruments (Ineffective Portion and Amount Excluded from Effectiveness Testing) (a)</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="bottom"><DIV style="margin-left:15px; text-indent:-15px">Regulated electricity segment fuel and purchased power</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(68</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(9,085</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,364</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(12,993</TD> <TD nowrap>)</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR style="font-size: 6pt"> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="96">&nbsp;</TD> </TR> <TR valign="top"> <TD nowrap align="left">(a)</TD> <TD>&nbsp;</TD> <TD>During the three and nine months ended September&nbsp;30, 2010 and 2009, we had no amounts reclassified from AOCI to earnings related to discontinued cash flow hedges.</TD> </TR> </TABLE> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">During the next twelve months, we estimate that a net loss of $119&nbsp;million before income taxes will be reclassified from AOCI as an offset to the effect of market price changes for the related hedged transactions. Approximately 90% of the amounts related to derivatives subject to the PSA will be recorded as either a regulatory asset or liability and have no effect on earnings. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->23<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Derivative Instruments Not Designated as Accounting Hedges</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table provides information about gains and losses from derivative instruments not designated as accounting hedging instruments and their impact on our Condensed Consolidated Statements of Income during the three and nine months ended September&nbsp;30, 2010 and 2009 (dollars in thousands): </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="32%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="25%">&nbsp;</TD> <TD width="2%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="7%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="2%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="7%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="2%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="7%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="2%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="7%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Three Months Ended</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Nine Months Ended</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center">Financial Statement</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD nowrap align="left" style="border-bottom: 1px solid #000000">Commodity Contracts</TD> <TD>&nbsp;</TD> <TD nowrap align="center" style="border-bottom: 1px solid #000000">Location</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="padding-top: 0em"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="bottom">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Amount of Net Gain Recognized in Income from Derivative Instruments</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="bottom"><DIV style="margin-left:15px; text-indent:-15px">Regulated electricity segment revenue</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">1,721</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">126</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">2,316</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">464</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 0em"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="bottom">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Amount of Net Gain (Loss) Recognized in Income from Derivative Instruments</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="bottom"><DIV style="margin-left:15px; text-indent:-15px">Regulated electricity segment fuel and purchased power expense</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(41,044</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">23,463</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(105,272</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(18,259</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="bottom">&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="bottom">&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(39,323</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">23,589</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(102,956</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(17,795</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="bottom">&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->24<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Fair Values of Derivative Instruments in the Condensed Consolidated Balance Sheets</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table provides information about the fair value of our derivative instruments, margin account and cash collateral reported on a gross basis. Transactions with counterparties that have master netting arrangements are reported net on the balance sheet. These amounts are located in the assets and liabilities from risk management activities lines of our Condensed Consolidated Balance Sheets. Amounts are as of September&nbsp;30, 2010 (dollars in thousands): </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="30%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Investments</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Current</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Deferred Credits</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Total Assets</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD nowrap align="left" style="border-bottom: 1px solid #000000">Commodity Contracts</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Current Assets</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">and Other Assets</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Liabilities</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">and Other</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">(Liabilities)</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Derivatives designated as accounting hedging instruments:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Assets</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">2</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">2</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Liabilities</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(1,311</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(2,159</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(123,351</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(86,043</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(212,864</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total hedging instruments</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(1,309</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(2,159</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(123,351</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(86,043</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(212,862</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Derivatives not designated as accounting hedging instruments:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Assets</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">40,078</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">57,154</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">45,700</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">30,659</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">173,591</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Liabilities</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(1,257</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(27</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(124,165</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(126,066</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(251,515</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total non-hedging instruments</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">38,821</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">57,127</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(78,465</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(95,407</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(77,924</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total derivatives</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">37,512</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">54,968</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(201,816</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(181,450</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(290,786</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Margin account</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">23,822</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2,068</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">25,890</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Collateral provided to counterparties</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">12,701</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">145,230</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">100,794</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">258,725</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Collateral provided from counterparties</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(6,750</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(1,250</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(8,000</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Prepaid option premiums and other</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,191</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(79</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,112</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Balance Sheet Total</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">68,476</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">54,968</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(55,847</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(80,656</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(13,059</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->25<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table provides information about the fair value of our derivative instruments, margin account and cash collateral reported on a gross basis at December&nbsp;31, 2009 (dollars in thousands): </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="30%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Investments</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Current</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Deferred Credits</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Total Assets</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD nowrap align="left" style="border-bottom: 1px solid #000000">Commodity Contracts</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Current Assets</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">and Other Assets</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Liabilities</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">and Other</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">(Liabilities)</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Derivatives designated as accounting hedging instruments:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Assets</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">329</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,242</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">75</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,646</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Liabilities</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(3,436</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(256</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(72,899</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(77,953</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(154,544</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total hedging instruments</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(3,107</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(256</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(69,657</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(77,878</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(150,898</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Derivatives not designated as accounting hedging instruments:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Assets</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">31,220</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">29,807</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">34,645</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">44,631</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">140,303</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Liabilities</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(4,123</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(696</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(81,722</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(71,408</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(157,949</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total non-hedging instruments</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">27,097</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">29,111</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(47,077</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(26,777</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(17,646</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total derivatives</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">23,990</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">28,855</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(116,734</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(104,655</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(168,544</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Margin account</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">8,643</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">12,464</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">104</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">21,211</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Collateral provided to counterparties</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">17,986</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">49,412</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">42,108</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">109,506</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Collateral provided from counterparties</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(1,050</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(1,050</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Balance Sheet Total</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">50,619</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">28,855</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(55,908</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(62,443</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(38,877</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Credit Risk and Credit-Related Contingent Features</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We are exposed to losses in the event of nonperformance or nonpayment by counterparties. We have risk management contracts with many counterparties, including two counterparties for which our exposure represents approximately 51% of Pinnacle West&#146;s $123&nbsp;million of risk management assets as of September&nbsp;30, 2010. This exposure relates to long-term traditional wholesale contracts with counterparties that have very high credit quality. Our risk management process assesses and monitors the financial exposure of all counterparties. Despite the fact that the great majority of our trading counterparties&#146; debt is rated as investment grade by the credit rating agencies, there is still a possibility that one or more of these companies could default, resulting in a material impact on consolidated earnings for a given period. Counterparties in the portfolio consist principally of financial institutions, major energy companies, municipalities and local distribution companies. We maintain credit policies that we believe minimize overall credit risk to within acceptable limits. Determination of the credit quality of our counterparties is based upon a number of factors, including credit ratings and our evaluation of their financial condition. To manage credit risk, we employ collateral requirements and standardized agreements that allow for the netting of positive and negative exposures associated with a single counterparty. Valuation adjustments are established representing our estimated credit losses on our overall exposure to counterparties. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->26<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Certain of our derivative instrument contracts contain credit-risk-related contingent features including, among other things, investment grade credit rating provisions, credit-related cross default provisions, and adequate assurance provisions. Adequate assurance provisions allow a counterparty with reasonable grounds for uncertainty to demand additional collateral based on subjective events and/or conditions. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position on September&nbsp;30, 2010 was $430&nbsp;million, for which we had posted collateral of $247&nbsp;million in the normal course of business. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">For those derivative instruments in a net liability position, with investment grade credit contingencies, the counterparties could demand additional collateral if our debt credit rating were to fall below investment grade (below BBB- for Standard &#038; Poor&#146;s Ratings Services (&#147;Standard &#038; Poor&#146;s&#148;) or Fitch, Inc. (&#147;Fitch&#148;) or Baa3 for Moody&#146;s Investors Service, Inc. (&#147;Moody&#146;s&#148;)), which would be a violation of the credit rating provisions. If the investment grade contingent features underlying these agreements had been fully triggered on September&nbsp;30, 2010, after off-setting asset positions under master netting arrangements we would have been required to post approximately an additional $111&nbsp;million of collateral to our counterparties; this amount includes those contracts that qualify for scope exceptions, which are excluded from the derivative details in the above footnote. We also have energy related non-derivative instrument contracts with investment grade credit-related contingent features which could require us to post additional collateral of approximately $204&nbsp;million if our debt credit ratings were to fall below investment grade. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->27<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <!-- xbrl,n --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>9. Changes in Equity</B> </DIV> <!-- xbrl,body --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following tables show Pinnacle West&#146;s changes in shareholders&#146; equity and changes in equity of noncontrolling interests for the three and nine months ended September&nbsp;30, 2010 and 2009 (dollars in thousands): </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="40%">&nbsp;</TD> <TD width="2%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="6%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="2%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="6%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="2%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="6%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="2%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="6%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="2%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="6%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="2%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="6%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Three Months Ended September 30, 2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Three Months Ended September 30, 2009</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Common</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Noncontrolling</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Common</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Noncontrolling</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Shareholders</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Interests</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Total</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Shareholders</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Interests</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Total</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Beginning balance, July 1</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,479,548</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">113,455</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,593,003</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,206,805</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">112,677</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,319,482</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">233,920</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">5,119</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">239,039</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">186,652</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4,371</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">191,023</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Other comprehensive income (loss):</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Net unrealized gains (losses)&nbsp;on derivative instruments (a)</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(67,856</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(67,856</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4,959</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4,959</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Net reclassification of realized losses to income (b)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">59,801</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">59,801</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">81,660</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">81,660</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Reclassification of pension and other postretirement benefits to income</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,314</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,314</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,240</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,240</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Net income tax benefit (expense)&nbsp;related to items of other comprehensive income (loss)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2,660</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2,660</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(34,495</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(34,495</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total other comprehensive income (loss)</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(4,081</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(4,081</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">53,364</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">53,364</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total comprehensive income</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">229,839</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">5,119</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">234,958</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">240,016</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4,371</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">244,387</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Issuance of capital stock</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2,506</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2,506</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2,756</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2,756</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Purchase of treasury stock, net of reissuances</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">577</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">577</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">589</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">589</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Other (primarily stock compensation)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4,456</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4,456</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(372</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(372</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Dividends on common stock</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(53,132</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(53,132</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Net capital activities by noncontrolling interests</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(7,271</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(7,271</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(93</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(93</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Ending balance, September 30</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,716,926</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">111,303</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,828,229</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,396,662</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">116,955</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,513,617</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->28<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="40%">&nbsp;</TD> <TD width="2%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="6%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="2%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="6%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="2%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="6%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="2%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="6%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="2%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="6%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="2%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="6%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Nine Months Ended September 30, 2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Nine Months Ended September 30, 2009</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Common</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Noncontrolling</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Common</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Noncontrolling</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Shareholders</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Interests</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Total</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Shareholders</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Interests</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Total</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Beginning balance, January 1</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,316,109</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">111,895</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,428,004</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,445,979</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">124,990</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,570,969</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">342,703</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">15,005</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">357,708</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">98,489</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(690</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">97,799</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Other comprehensive income (loss):</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Net unrealized losses on derivative instruments (a)</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(168,110</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(168,110</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(128,035</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(128,035</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Net reclassification of realized losses to income (b)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">102,130</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">102,130</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">154,990</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">154,990</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Reclassification of pension and other postretirement benefits to income</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4,069</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4,069</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,745</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,745</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Net unrealized losses related to pension and other postretirement benefits</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(6,933</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(6,933</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(4,204</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(4,204</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Net income tax benefit (expense)&nbsp;related to items of other comprehensive income (loss)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">27,171</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">27,171</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(10,337</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(10,337</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total other comprehensive income (loss)</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(41,673</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(41,673</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">16,159</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">16,159</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total comprehensive income (loss)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">301,030</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">15,005</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">316,035</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">114,648</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(690</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">113,958</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Issuance of capital stock</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">260,665</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">260,665</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">8,102</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">8,102</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Purchase of treasury stock, net of reissuances</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,655</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,655</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(957</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(957</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Other (primarily stock compensation)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4,598</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4,598</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(11,899</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(11,899</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Dividends on common stock</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(167,131</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(167,131</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(159,211</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(159,211</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Net capital activities by noncontrolling interests</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(15,597</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(15,597</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(7,345</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(7,345</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Ending balance, September 30</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,716,926</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">111,303</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,828,229</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,396,662</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">116,955</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,513,617</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR style="font-size: 6pt"> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="96">&nbsp;</TD> </TR> <TR valign="top"> <TD nowrap align="left">(a)</TD> <TD>&nbsp;</TD> <TD>These amounts primarily include unrealized gains and losses on contracts used to hedge our forecasted electricity and natural gas requirements to serve Native Load. These changes are primarily due to changes in forward natural gas prices and wholesale electricity prices.</TD> </TR> <TR style="font-size: 3pt"><TD>&nbsp;</TD></TR> <TR valign="top"> <TD nowrap align="left">(b)</TD> <TD>&nbsp;</TD> <TD>These amounts primarily include the reclassification of unrealized gains and losses to realized gains and losses for contracted commodities delivered during the period.</TD> </TR> </TABLE> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->29<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <!-- xbrl,n --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>10. Commitments and Contingencies</B> </DIV> <!-- xbrl,body --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Palo Verde Nuclear Generating Station</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>Spent Nuclear Fuel and Waste Disposal</I></B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Nuclear power plant operators are required to enter into spent fuel disposal contracts with the United States Department of Energy (&#147;DOE&#148;), and the DOE is required to accept and dispose of all spent nuclear fuel and other high-level radioactive wastes generated by domestic power reactors. Although the Nuclear Waste Policy Act required the DOE to develop a permanent repository for the storage and disposal of spent nuclear fuel by 1998, the DOE announced that it would not be able to open the repository by 1998 and sought to excuse its performance under the contract. In November&nbsp;1997, the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit) issued a decision preventing the DOE from excusing its own delay, but refused to order the DOE to begin accepting spent nuclear fuel. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Based on this decision and the DOE&#146;s delay, a number of utilities, including APS (on behalf of itself and the other Palo Verde owners), filed damages actions against the DOE in the Court of Federal Claims. APS pursued a damages claim for costs incurred through December&nbsp;2006 in a trial that began on January&nbsp;28, 2009. On June&nbsp;18, 2010, the court awarded APS and the other Palo Verde owners approximately $30&nbsp;million. APS received its share of this amount in October&nbsp;2010, which is approximately $9&nbsp;million. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">APS currently estimates it will incur $132&nbsp;million (in 2010 dollars) over the current life of Palo Verde for its share of the costs related to the on-site interim storage of spent nuclear fuel. At September&nbsp;30, 2010, APS had a regulatory liability of $46&nbsp;million that represents amounts recovered in retail rates in excess of amounts spent for on-site interim spent fuel storage. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Fuel and Purchased Power Commitments and Purchase Obligations</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">APS is party to purchase obligations and various fuel and purchased power contracts with terms expiring between 2010 and 2042 that include required purchase provisions. APS estimates the contract requirements to be approximately $727&nbsp;million in 2010; $527&nbsp;million in 2011; $435&nbsp;million in 2012; $515&nbsp;million in 2013; $550&nbsp;million in 2014; and $7.6&nbsp;billion thereafter. However, these amounts may vary significantly pursuant to certain provisions in such contracts that permit us to decrease required purchases under certain circumstances. These amounts have increased since the 2009 Form 10-K primarily due to increased commitments for fuel and purchased power and contracts associated with meeting our renewable energy requirements. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Coal Mine Reclamation Obligations</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">APS is obligated to reimburse certain coal providers for amounts incurred for coal mine reclamation. APS&#146; coal mine reclamation obligation recorded on the Condensed Consolidated Balance Sheets was estimated to be $117&nbsp;million at September&nbsp;30, 2010 and $92&nbsp;million at December&nbsp;31, 2009. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->30<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>FERC Market Issues</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">APS reached a settlement on previously disputed matters resulting from its involvement in the California energy market during specified time frames in the early 2000s. The settlement was approved by the FERC in an order issued on June&nbsp;30, 2008. The resolution of the claims related to the parties involved in this settlement had no material adverse impact on APS&#146; financial position, results of operations or cash flows. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On July&nbsp;25, 2001, the FERC ordered an evidentiary proceeding to discuss and evaluate possible refunds for wholesale sales in the Pacific Northwest. The FERC affirmed the administrative law judge&#146;s conclusion that the prices in the Pacific Northwest were not unreasonable or unjust and refunds should not be ordered in this proceeding. This decision was appealed to the U.S. Court of Appeals for the Ninth Circuit. On August&nbsp;24, 2007, the Ninth Circuit issued an opinion that remanded the proceeding to the FERC for further consideration. Although the FERC has not yet determined whether any refunds will ultimately be required, we do not expect that the resolution of these issues will have a material adverse impact on our financial position, results of operations or cash flows. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Superfund</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Comprehensive Environmental Response, Compensation and Liability Act (&#147;Superfund&#148;) establishes liability for the cleanup of hazardous substances found contaminating the soil, water or air. Those who generated, transported or disposed of hazardous substances at a contaminated site are among those who are potentially responsible parties under Superfund (&#147;PRPs&#148;). PRPs may be strictly, and often are jointly and severally, liable for clean-up. On September&nbsp;3, 2003, the United States Environmental Protection Agency (&#147;EPA&#148;) advised APS that the EPA considers APS to be a PRP in the Motorola 52<SUP style="FONT-size: 85%; vertical-align: text-top">nd</SUP> Street Superfund Site, Operable Unit 3 (&#147;OU3&#148;) in Phoenix, Arizona. APS has facilities that are within this Superfund site. APS and Pinnacle West have agreed with the EPA to perform certain investigative activities of the APS facilities within OU3. In addition, on September&nbsp;23, 2009, APS agreed with the EPA and one other PRP to voluntarily assist with the funding and management of the site-wide groundwater remedial investigation and feasibility study work plan. We estimate that our costs related to this investigation and study will be approximately $1.2&nbsp;million, which is reserved as a liability on our financial statements. We anticipate incurring additional expenditures in the future, but because the overall investigation is not complete and ultimate remediation requirements are not yet finalized, at the present time we cannot accurately estimate our total expenditures. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Landlord Bankruptcy</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On April&nbsp;16, 2009, the landlord for our corporate headquarters building announced that it is seeking relief under Chapter&nbsp;11 of the United States Bankruptcy Code. At September&nbsp;30, 2010, we have several assets on our books related to our landlord, the most significant of which is an asset related to levelized rent payments for the building of approximately $70&nbsp;million which is included in other deferred debits on the Condensed Consolidated Balance Sheets. This amount will continue to increase to approximately $93&nbsp;million as a result of the lease terms until 2015, when this amount will begin to decrease over the remaining life of the lease. We are monitoring this matter and, while there can be no assurances as to the ultimate outcome of the matter due to the complexity of the bankruptcy proceedings, we currently do not expect that it will have a material adverse effect on our financial position, results of operations, or cash flows. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->31<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Nuclear Insurance</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Palo Verde participants are insured against public liability for a nuclear incident up to $12.6&nbsp;billion per occurrence. As required by the Price Anderson Nuclear Industries Indemnity Act, Palo Verde maintains the maximum available nuclear liability insurance in the amount of $375 million, which is provided by commercial insurance carriers. The remaining balance of $12.2 billion is provided through a mandatory industry wide retrospective assessment program. If losses at any nuclear power plant covered by the program exceed the accumulated funds, APS could be assessed retrospective premium adjustments. The maximum assessment per reactor under the program for each nuclear incident is approximately $118&nbsp;million, subject to an annual limit of $18&nbsp;million per incident, to be periodically adjusted for inflation. Based on APS&#146; interest in the three Palo Verde units, APS&#146; maximum potential assessment per incident for all three units is approximately $103&nbsp;million, with an annual payment limitation of approximately $15&nbsp;million. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Palo Verde participants maintain &#147;all risk&#148; (including nuclear hazards) insurance for property damage to, and decontamination of, property at Palo Verde in the aggregate amount of $2.75 billion, a substantial portion of which must first be applied to stabilization and decontamination. APS has also secured insurance against portions of any increased cost of generation or purchased power and business interruption resulting from a sudden and unforeseen accidental outage of any of the three units. The property damage, decontamination, and replacement power coverages are provided by Nuclear Electric Insurance Limited (&#147;NEIL&#148;). APS is subject to retrospective assessments under all NEIL policies if NEIL&#146;s losses in any policy year exceed accumulated funds. The maximum amount APS could incur under the current NEIL policies totals approximately $16&nbsp;million for each retrospective assessment declared by NEIL&#146;s Board of Directors due to losses. In addition, NEIL policies contain rating triggers that would result in APS providing approximately $44&nbsp;million of collateral assurance within 20 business days of a rating downgrade to non-investment grade. The insurance coverage discussed in this and the previous paragraph is subject to certain policy conditions and exclusions. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->32<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <!-- xbrl,n --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>11. Other Income and Other Expense</B> </DIV> <!-- xbrl,body --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table provides detail of other income and other expense for the three and nine months ended September&nbsp;30, 2010 and 2009 (dollars in thousands): </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="44%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Three Months Ended</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Nine Months Ended</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Other income:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Interest income</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">943</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">543</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">2,597</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">1,185</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Investment gains &#151; net</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,390</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,696</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,051</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">120</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Miscellaneous</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">15</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">147</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">180</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2,797</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total other income</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">4,348</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">4,386</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,828</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">4,102</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Other expense:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Non-operating costs</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(2,894</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(1,643</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(5,917</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(6,498</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Miscellaneous</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(961</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(291</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(2,733</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(2,389</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total other expense</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(3,855</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(1,934</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(8,650</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(8,887</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <!-- xbrl,n --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>12. Guarantees</B> </DIV> <!-- xbrl,body --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We have issued parental guarantees and obtained surety bonds on behalf of our subsidiaries including credit support instruments enabling APSES to offer energy-related products and surety bonds at APS, principally related to self-insured workers&#146; compensation. Non-performance or non-payment under the underlying contract by our subsidiaries would result in a payment liability on our part under the guarantee or surety bond. No liability is currently recorded on the Condensed Consolidated Balance Sheets related to Pinnacle West&#146;s current outstanding guarantees and surety bonds on behalf of our subsidiaries. At September&nbsp;30, 2010, we had no outstanding claims for payment under any of these guarantees. Our guarantees and surety bonds have no recourse or collateral provisions to allow us to recover amounts paid under the guarantees or surety bonds from our subsidiaries. The amounts and approximate terms of our guarantees and surety bonds for each subsidiary at September&nbsp;30, 2010 are as follows (dollars in millions): </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="44%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Guarantees</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Surety Bonds</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Term</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Term</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Amount</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">(in years)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Amount</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">(in years)</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">APSES</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">5</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">42</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">APS</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">9</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">8</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">51</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 0px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 0px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">APS has entered into various agreements that require letters of credit for financial assurance purposes. At September&nbsp;30, 2010, approximately $194&nbsp;million of letters of credit were outstanding to support existing pollution control bonds of approximately $190&nbsp;million. The letters of credit are available to fund the payment of principal and interest of such debt obligations. In connection with the change of interest rate modes and termination of corresponding letters of credit for certain pollution control bonds described in Note 2, the letters of credit outstanding have decreased since September&nbsp;30, 2010. Currently, there are approximately $44&nbsp;million of letters of credit outstanding to support existing pollution control bonds of approximately $44&nbsp;million. These letters of credit expire in 2011 and 2013. APS has also entered into approximately $61 million of letters of credit to support certain equity lessors in the Palo Verde sale leaseback transactions (see Note 7 for further details on the Palo Verde sale leaseback transactions). These letters of credit were amended and extended in April&nbsp;2010, and will expire in 2013. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->33<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We enter into agreements that include indemnification provisions relating to liabilities arising from or related to certain of our agreements; most significantly, APS has agreed to indemnify the equity participants and other parties in the Palo Verde sale leaseback transactions with respect to certain tax matters. Generally, a maximum obligation is not explicitly stated in the indemnification provisions and, therefore, the overall maximum amount of the obligation under such indemnification provisions cannot be reasonably estimated. Based on historical experience and evaluation of the specific indemnities, we do not believe that any material loss related to such indemnification provisions is likely. </DIV> <!-- xbrl,n --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>13. Earnings Per Share</B> </DIV> <!-- xbrl,body --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table presents earnings per weighted average common share outstanding for the three and nine months ended September&nbsp;30, 2010 and 2009: </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="44%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Three Months Ended</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Nine Months Ended</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Basic earnings per share:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Income from continuing operations attributable to common shareholders</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">2.09</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">1.96</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3.06</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">2.47</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Income (loss)&nbsp;from discontinued operations</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">0.06</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(0.12</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">0.18</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(1.50</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Earnings per share &#151; basic</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">2.15</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">1.84</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3.24</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">0.97</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted earnings per share:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Income from continuing operations attributable to common shareholders</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">2.08</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">1.96</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3.04</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">2.46</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Income (loss)&nbsp;from discontinued operations</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">0.06</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(0.12</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">0.18</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(1.49</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Earnings per share &#151; diluted</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">2.14</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">1.84</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3.22</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">0.97</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Dilutive stock options and performance shares (which are contingently issuable) increased average diluted common shares outstanding by approximately 462,000 shares and 162,000 shares for the three months ended September&nbsp;30, 2010 and 2009, respectively, and by approximately 472,000 and 77,000 shares for the nine months ended September&nbsp;30, 2010 and 2009, respectively. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Options to purchase 175,333 shares of common stock for the three-month period ended September&nbsp;30, 2010, and 561,157 shares for the three-month period ended September&nbsp;30, 2009 were outstanding but were excluded from the computation of diluted earnings per share because the options&#146; exercise prices were greater than the average market price of the common shares. Options to purchase 322,333 shares and 595,335 shares of common stock for the nine-month periods ended September&nbsp;30, 2010 and September&nbsp;30, 2009, respectively, were outstanding but were excluded from the computation of diluted earnings per share because the options&#146; exercise prices were greater than the average market price of the common shares. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->34<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <!-- xbrl,n --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>14. Discontinued Operations</B> </DIV> <!-- xbrl,body --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B>SunCor </B>(real estate segment) <B>&#151; </B>In July&nbsp;2010, SunCor sold land parcels, commercial assets and a master planned home-building community for approximately $70&nbsp;million, which approximated the carrying value of these assets, resulting in a net gain of zero. At September&nbsp;30, 2010, SunCor had approximately $22&nbsp;million of assets on its balance sheet classified as assets held for sale. These assets consist of $18&nbsp;million of consolidated VIEs (see Note 7), master planned home-building communities and golf courses. Because it is expected that SunCor will dispose of these assets within the next 12&nbsp;months, they are classified as assets held for sale on the balance sheet. As a result, for the three and nine months ended September&nbsp;30, 2010, all of SunCor&#146;s operations are reflected in discontinued operations. Prior comparative period income statement amounts related to these properties were reclassified from continuing operations to discontinued operations. In addition, see Note 16 &#151; Real Estate Impairment Charge. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B>APSES </B>(other) <B>&#151; </B>On June&nbsp;22, 2010, our subsidiary, APSES, sold its district cooling business consisting of operations in downtown Phoenix, Tucson, and on certain Arizona State University campuses. As a result of the sale, we recorded an after-tax gain from discontinued operations of approximately $25&nbsp;million in June&nbsp;2010. Prior period income statement amounts related to this sale and the associated revenues and costs are reflected in discontinued operations in 2010 and 2009. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table provides revenue, income (loss)&nbsp;before income taxes and income (loss) after taxes classified as discontinued operations in Pinnacle West&#146;s Condensed Consolidated Statements of Income for the three and nine months ended September&nbsp;30, 2010 and 2009 (dollars in millions): </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="44%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Three Months Ended</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Nine Months Ended</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Revenue:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">SunCor</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">4</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">49</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">25</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">85</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">APSES</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">5</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">7</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">14</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total revenue</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">4</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">54</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">32</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">99</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Income (loss)&nbsp;before taxes:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">SunCor</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">14</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(20</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(10</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(252</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">APSES</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(2</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">42</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total income (loss)&nbsp;before taxes</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">12</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(19</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">32</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(249</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Income (loss)&nbsp;after taxes:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">SunCor (a)</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">8</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(12</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(6</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(153</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">APSES</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(1</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">26</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total income (loss)&nbsp;after taxes</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">7</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(11</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">20</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(151</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV style="margin-top: 6pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR> <TD width="3%"></TD> <TD width="1%"></TD> <TD width="96%"></TD> </TR> <TR valign="top"> <TD nowrap align="left">(a)</TD> <TD>&nbsp;</TD> <TD>Includes a tax (expense)&nbsp;benefit recognized by the parent company in accordance with an intercompany tax sharing agreement of ($6) million and $8&nbsp;million for the three months ended September&nbsp;30, 2010, and 2009, respectively; and $4&nbsp;million and $99&nbsp;million for the nine months ended September&nbsp;30, 2010 and 2009, respectively.</TD> </TR> </TABLE> </DIV> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->35<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <!-- xbrl,n --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>15. Fair Value Measurements</B> </DIV> <!-- xbrl,body --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We disclose the fair value of certain assets and liabilities according to a fair value hierarchy. This hierarchy ranks the quality and reliability of the inputs used to determine fair values, which are then classified and disclosed in one of three categories. The three levels of the fair value hierarchy are: </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="3%" nowrap align="left">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD>Level 1 &#151; Quoted prices in active markets for identical assets or liabilities. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide information on an ongoing basis. This category includes derivative instruments that are exchange-traded such as futures, cash equivalents invested in exchange-traded money market funds, exchange-traded equities, and investments in Treasury securities.</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="3%" nowrap align="left">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD>Level 2 &#151; Quoted prices in active markets for similar assets or liabilities; quoted prices in markets that are not active; and model-derived valuations whose inputs are observable. This category includes nonexchange-traded derivative instruments such as forwards, options, and swaps. This category also includes investments in common and commingled funds that are redeemable and valued based on the funds&#146; net asset values.</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="3%" nowrap align="left">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD>Level 3 &#151; Model-derived valuations with significant unobservable inputs that are supported by little or no market activity. Instruments in this category include long-dated derivative transactions where models are required due to the length of the transaction, certain options, transactions in locations where observable market data does not exist, and common and collective trusts with significant restrictions on our ability to transact in the fund. The valuation models we employ utilize spot prices, forward prices, historical market data and other factors to forecast future prices. The primary valuation technique we use to calculate the fair value of contracts where price quotes are not available is based on the extrapolation of forward pricing curves using observable market data for more liquid delivery points in the same region and actual transactions at the more illiquid delivery points.</TD> </TR> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. We maximize the use of observable inputs and minimize the use of unobservable inputs. If market data is not readily available, inputs may reflect our own assumptions about the inputs market participants would use. Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. Thus, a valuation may be classified in Level 3 even though the valuation may include significant inputs that are readily observable. We assess whether a market is active by obtaining observable broker quotes, reviewing actual market transactions, and assessing the volume of transactions. We consider broker quotes observable inputs when the quote is binding on the broker, we can validate the quote with market transactions, or we can determine that the inputs the broker used to arrive at the quoted price are observable. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Recurring Fair Value Measurements</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We apply recurring fair value measurements to derivative instruments, nuclear decommissioning trusts, certain cash equivalents and plan assets held in our retirement and other benefit plans. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->36<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>Cash Equivalents</I></B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Cash equivalents represent short-term investments in exchange-traded money market funds that are valued using quoted prices in active markets. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>Risk Management Activities</I></B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Exchange-traded contracts are valued using quoted prices in active markets. For non-exchange traded contracts, we calculate fair market value based on the average of the bid and offer price, discounted to reflect net present value. We maintain certain valuation adjustments for a number of risks associated with the valuation of future commitments. These include valuation adjustments for liquidity and credit risks based on the financial condition of counterparties. The liquidity valuation adjustment represents the cost that would be incurred if all unmatched positions were closed-out or hedged. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The credit valuation adjustment represents estimated credit losses on our overall exposure to counterparties, taking into account netting arrangements, expected default experience for the credit rating of the counterparties and the overall diversification of the portfolio. Counterparties in the portfolio consist principally of major energy companies, municipalities, local distribution companies and financial institutions. We maintain credit policies that management believes minimize overall credit risk. Determination of the credit quality of counterparties is based upon a number of factors, including credit ratings, financial condition, project economics and collateral requirements. When applicable, we employ standardized agreements that allow for the netting of positive and negative exposures associated with a single counterparty. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Some of our derivative instrument transactions are valued based on unobservable inputs due to the long-term nature of contracts or the unique location of the transactions. Our long-dated energy transactions consist of observable valuations for the near-term portion and unobservable inputs for the long-term portions of the transaction. When the unobservable portion is significant to the overall valuation of the transaction, the entire transaction is classified as Level 3. Our classification of instruments as Level 3 is primarily reflective of the long-term nature of our energy transactions, and is not reflective of material inactive markets. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>Nuclear Decommissioning Trust</I></B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The nuclear decommissioning trust invests in fixed income securities directly and equity securities indirectly through commingled funds. The commingled equity funds are valued based on the fund&#146;s net asset value and are classified within Level 2. We may transact in the fund on a semi-monthly basis. Our trustee provides valuation of our nuclear decommissioning trust assets by using pricing services to determine fair market value. We assess these valuations and verify that pricing can be supported by actual recent market transactions. The trust fund investments have been established to satisfy APS&#146; nuclear decommissioning obligations. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->37<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>Fair Value Tables</I></B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table presents the fair value at September&nbsp;30, 2010 of our assets and liabilities that are measured at fair value on a recurring basis (dollars in millions): </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="30%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Quoted Prices</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Significant</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">in Active</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Other</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Significant</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2"> Markets for</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Observable</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Unobservable</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Counterparty</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Balance at</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Identical Assets</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Inputs</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Inputs (a)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Netting &#038;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">September 30,</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">(Level 1)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">(Level 2)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">(Level 3)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Other (b)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Assets</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Cash equivalents</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">122</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">122</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Risk management activities:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:60px; text-indent:-15px">Commodity contracts</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">98</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">76</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(51</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">123</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Nuclear decommissioning trust:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Equity securities:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:60px; text-indent:-15px">U.S. commingled funds</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">151</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">151</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Fixed income securities:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:60px; text-indent:-15px">U.S. Treasury</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">67</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">67</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:60px; text-indent:-15px">Corporate</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">63</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">63</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:60px; text-indent:-15px">Mortgage-backed</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">61</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">61</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:60px; text-indent:-15px">Municipality</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">71</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">71</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:60px; text-indent:-15px">Other</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">54</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(13</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">41</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">189</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">498</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">76</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(64</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">699</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Liabilities</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Risk management activities:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:60px; text-indent:-15px">Commodity contracts</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(2</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(338</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(125</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">328</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(137</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV style="margin-top: 6pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR> <TD width="3%"></TD> <TD width="1%"></TD> <TD width="96%"></TD> </TR> <TR valign="top"> <TD nowrap align="left">(a)</TD> <TD>&nbsp;</TD> <TD>Primarily consists of long-dated electricity contracts.</TD> </TR> <TR style="font-size: 3pt"><TD>&nbsp;</TD></TR> <TR valign="top"> <TD nowrap align="left">(b)</TD> <TD>&nbsp;</TD> <TD>Primarily represents netting under master netting arrangements, including margin and collateral. See Note 8.</TD> </TR> </TABLE> </DIV> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->38<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table presents the fair value at December&nbsp;31, 2009 of our assets and liabilities that are measured at fair value on a recurring basis (dollars in millions): </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="30%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Quoted Prices</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Significant</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">in Active</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Other</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Significant</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Markets for</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Observable</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Unobservable</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Counterparty</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Balance at</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Identical Assets</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Inputs</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Inputs (a)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Netting &#038;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">December 31,</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">(Level 1)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">(Level 2)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">(Level 3)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Other (b)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Assets</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Cash equivalents</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">97</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">97</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Risk management activities:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:60px; text-indent:-15px">Commodity contracts</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">100</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">42</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(64</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">79</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Nuclear decommissioning trust:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Equity securities:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:60px; text-indent:-15px">U.S. commingled funds</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">167</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">167</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Fixed income securities:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:60px; text-indent:-15px">U.S. Treasury</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">55</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">55</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:60px; text-indent:-15px">Corporate</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">62</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">62</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:60px; text-indent:-15px">Mortgage-backed</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">60</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">60</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:60px; text-indent:-15px">Municipality</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">49</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">49</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:60px; text-indent:-15px">Other</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">21</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">22</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">153</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">459</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">42</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(63</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">591</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Liabilities</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Risk management activities:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:60px; text-indent:-15px">Commodity contracts</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(14</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(246</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(52</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">194</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(118</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV style="margin-top: 6pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR> <TD width="3%"></TD> <TD width="1%"></TD> <TD width="96%"></TD> </TR> <TR valign="top"> <TD nowrap align="left">(a)</TD> <TD>&nbsp;</TD> <TD>Primarily consists of long-dated electricity contracts.</TD> </TR> <TR style="font-size: 3pt"><TD>&nbsp;</TD></TR> <TR valign="top"> <TD nowrap align="left">(b)</TD> <TD>&nbsp;</TD> <TD>Primarily represents netting under master netting arrangements, including margin and collateral. See Note 8.</TD> </TR> </TABLE> </DIV> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->39<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table shows the changes in fair value for assets and liabilities that are measured at fair value on a recurring basis using Level 3 inputs for the three and nine months ended September&nbsp;30, 2010 and 2009 (dollars in millions): </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="44%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Three Months Ended</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Nine Months Ended</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD nowrap align="left" style="border-bottom: 1px solid #000000">Commodity Contracts</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Net derivative balance at beginning of period</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(42</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(16</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(10</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(7</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total net gains (losses)&nbsp;realized/unrealized:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Included in earnings</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(1</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Included in OCI</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(11</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(2</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(20</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(3</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred as a regulatory asset or liability</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(15</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">6</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(39</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">12</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Settlements</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">12</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(4</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">15</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(1</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Transfers into Level 3 from Level 2</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(2</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(2</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">6</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(23</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Transfers from Level 3 into Level 2</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">8</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">6</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Net derivative balance at end of period</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(49</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(13</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(49</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(13</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Net unrealized gains (losses)&nbsp;included in earnings related to instruments still held at end of period</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">1</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">1</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Amounts included in earnings are recorded in either regulated electricity segment revenue or regulated electricity segment fuel and purchased power depending on the nature of the underlying contract. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Transfers reflect the fair market value at the beginning of the period and are triggered by a change in the lowest significant input as of the end of the period. We had no significant Level 1 transfers to or from any other hierarchy level. Transfers in or out of Level 3 are typically related to our long-dated energy transactions that extend beyond available quoted periods. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Nonrecurring Fair Value Measurements</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We may be required to record other assets at fair value on a nonrecurring basis. These nonrecurring fair value measurements typically involve write-downs of individual assets due to impairment. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We apply nonrecurring fair value measurements to certain real estate assets. These adjustments to fair value are the result of write-downs of individual assets due to impairment. Our real estate assets have been impaired due to the distressed real estate market. The majority of our real estate assets reflect the expected sales price less cost to sell at September&nbsp;30, 2010. Due to these unobservable inputs, the valuation of real estate assets are considered Level 3 measurements. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Financial Instruments Not Carried at Fair Value</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The carrying value of our net accounts receivable, accounts payable and short-term borrowings approximate fair value. Our long-term debt fair value estimates are based on quoted market prices of the same or similar issues. Certain of our debt instruments contain third-party credit enhancements and, in accordance with GAAP, we do not consider the effect of these credit enhancements when determining fair value. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->40<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table represents the carrying amount and estimated fair value of our long-term debt, including current maturities (dollars in millions): </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="44%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">As of</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">As of</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30, 2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">December 31, 2009</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Carrying</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Carrying</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Amount</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Fair Value</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Amount</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Fair Value</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Pinnacle West</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">175</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">178</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">175</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">180</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">APS</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,521</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,919</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,530</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,667</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">SunCor (a)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">6</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">6</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">95</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">95</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Total</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,702</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">4,103</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,800</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,942</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV style="margin-top: 6pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR> <TD width="3%"></TD> <TD width="1%"></TD> <TD width="96%"></TD> </TR> <TR valign="top"> <TD nowrap align="left">(a)</TD> <TD>&nbsp;</TD> <TD>See Note 2 for further discussion related to SunCor&#146;s debt and liquidity matters.</TD> </TR> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Nuclear Decommissioning Trust</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">To fund the costs APS expects to incur to decommission Palo Verde, APS established external decommissioning trusts in accordance with NRC regulations. Third-party investment managers are authorized to buy and sell securities per their stated investment guidelines. The trust funds are invested in a tax efficient manner in fixed income securities and domestic equity securities. APS classifies investments in decommissioning trust funds as available for sale, and therefore, we record the decommissioning trust funds at their fair value on our Condensed Consolidated Balance Sheets. Because of the ability of APS to recover decommissioning costs in rates and in accordance with the regulatory treatment for decommissioning trust funds, we have recorded the offsetting amount of gains or losses on investment securities in other regulatory liabilities or assets<I>.</I> The following table summarizes the fair value of APS&#146; nuclear decommissioning trust fund assets at September&nbsp;30, 2010 and December&nbsp;31, 2009 (dollars in millions): </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="58%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Total</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Total</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Unrealized</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Unrealized</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Fair Value</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Gains</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Losses</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">September&nbsp;30, 2010</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Equity securities</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">151</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">31</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(4</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Fixed income securities</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">316</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">20</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Net payables (a)</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(13</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">454</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">51</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(4</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV style="margin-top: 6pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR> <TD width="3%"></TD> <TD width="1%"></TD> <TD width="96%"></TD> </TR> <TR valign="top"> <TD nowrap align="left">(a)</TD> <TD>&nbsp;</TD> <TD>Net payables relate to pending securities sales and purchases.</TD> </TR> </TABLE> </DIV> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->41<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="58%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Total</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Total</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Unrealized</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Unrealized</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Fair Value</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Gains</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Losses</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">December&nbsp;31, 2009</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Equity securities</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">167</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">37</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(6</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Fixed income securities</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">247</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">11</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(1</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Net receivables (a)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">415</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">48</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(7</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV style="margin-top: 6pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR> <TD width="3%"></TD> <TD width="1%"></TD> <TD width="96%"></TD> </TR> <TR valign="top"> <TD nowrap align="left">(a)</TD> <TD>&nbsp;</TD> <TD>Net receivables relate to pending securities sales and purchases.</TD> </TR> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The costs of securities sold are determined on the basis of specific identification. The following table sets forth approximate realized gains and losses and proceeds from the sale of securities by the nuclear decommissioning trust funds (dollars in millions): </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="44%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Three Months Ended</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Nine Months Ended</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Realized gains</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">1</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">15</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">8</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Realized losses</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(1</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(3</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(6</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from the sale of securities (a)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">94</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">126</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">424</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">370</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV style="margin-top: 6pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR> <TD width="3%"></TD> <TD width="1%"></TD> <TD width="96%"></TD> </TR> <TR valign="top"> <TD nowrap align="left">(a)</TD> <TD>&nbsp;</TD> <TD>Proceeds are reinvested in the trust.</TD> </TR> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The fair value of fixed income securities, summarized by contractual maturities, at September&nbsp;30, 2010 is as follows (dollars in millions): </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="86%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Fair Value</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Less than one year</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">26</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">1&nbsp;year - 5&nbsp;years</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">74</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">5&nbsp;years - 10&nbsp;years</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">93</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Greater than 10&nbsp;years</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">123</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">316</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->42<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CAPITAL CORPORATION<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <!-- xbrl,n --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>16. Real Estate Impairment Charge</B> </DIV> <!-- xbrl,body --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In 2009, SunCor undertook and completed a review of its assets and strategies within its various markets as a result of the distressed conditions in real estate and credit markets. Based on the results of the review, on March&nbsp;27, 2009, SunCor&#146;s Board of Directors authorized a series of strategic transactions to dispose of SunCor&#146;s homebuilding operations, master-planned communities, land parcels, commercial assets and golf courses in order to reduce SunCor&#146;s outstanding debt. In July&nbsp;2010, SunCor sold land parcels, commercial assets and a master planned home-building community for approximately $70&nbsp;million, which approximated the carrying value of these assets, resulting in a net gain of zero. It is expected that SunCor will dispose of its other assets within the next 12&nbsp;months. As a result, they are classified as assets held for sale on the balance sheet at September&nbsp;30, 2010 and all of SunCor&#146;s operations are reflected in discontinued operations. The detail of the impairment charges are as follows (dollars in millions, and before income taxes): </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="44%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Three Months Ended</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Nine Months Ended</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Discontinued Operations:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Homebuilding and master-planned communities</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">10</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">1</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">160</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Land parcels and commercial assets</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">27</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">11</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">81</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Golf courses</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">19</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Subtotal</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">38</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">17</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">260</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Less noncontrolling interests</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(14</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">38</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">17</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">246</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">See Note 2 for a discussion of SunCor&#146;s debt and liquidity matters. </DIV> <!-- xbrl,is --> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->43<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="left"> <A name="105"></A> </DIV> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>ARIZONA PUBLIC SERVICE COMPANY</B> </DIV> <DIV align="center" style="font-size: 10pt"><B>CONDENSED CONSOLIDATED STATEMENTS OF INCOME</B><br> (unaudited)</DIV> <DIV align="center" style="font-size: 10pt">(dollars in thousands)</DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="72%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Three Months Ended</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">ELECTRIC OPERATING REVENUES</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">1,116,220</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">1,083,825</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">OPERATING EXPENSES</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Fuel and purchased power</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">353,904</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">381,543</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Operations and maintenance</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">217,044</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">193,530</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation and amortization</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">104,152</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">102,954</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Income taxes</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">126,841</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">118,923</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Taxes other than income taxes</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">37,270</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">33,782</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">839,211</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">830,732</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">OPERATING INCOME</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">277,009</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">253,093</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">OTHER INCOME (DEDUCTIONS)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Income taxes</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,272</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,070</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Allowance for equity funds used during construction</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">5,524</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2,197</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other income (Note S-2)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2,962</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,530</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other expense (Note S-2)</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(4,074</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(2,790</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">5,684</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4,007</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">INTEREST EXPENSE</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Interest on long-term debt</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">53,946</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">54,252</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Interest on short-term borrowings</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2,013</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,058</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Debt discount, premium and expense</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,121</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,115</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Allowance for borrowed funds used during construction</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(6,163</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(1,343</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">50,917</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">55,082</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">NET INCOME</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">231,776</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">202,018</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Less: Net income attributable to noncontrolling interests (Note 7)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">5,128</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4,953</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDER</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">226,648</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">197,065</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt">See Notes to Pinnacle West&#146;s Condensed Consolidated Financial Statements and Supplemental Notes to Arizona Public Service Company&#146;s Condensed Consolidated Financial Statements. </DIV> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->44<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>ARIZONA PUBLIC SERVICE COMPANY<BR> CONDENSED CONSOLIDATED STATEMENTS OF INCOME</B><BR> (unaudited)<BR> (dollars in thousands) </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="72%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Nine Months Ended</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">ELECTRIC OPERATING REVENUES</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">2,527,163</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">2,499,072</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">OPERATING EXPENSES</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Fuel and purchased power</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">821,244</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">920,630</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Operations and maintenance</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">632,235</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">595,929</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation and amortization</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">307,731</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">303,814</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Income taxes</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">177,089</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">158,041</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Taxes other than income taxes</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">100,171</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">100,077</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2,038,470</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2,078,491</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">OPERATING INCOME</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">488,693</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">420,581</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">OTHER INCOME (DEDUCTIONS)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Income taxes</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,769</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,684</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Allowance for equity funds used during construction</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">16,417</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">11,919</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other income (Note S-2)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,872</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">7,580</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other expense (Note S-2)</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(11,091</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(10,798</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">12,967</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">12,385</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">INTEREST EXPENSE</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Interest on long-term debt</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">161,918</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">157,980</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Interest on short-term borrowings</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">5,734</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">5,326</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Debt discount, premium and expense</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,376</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,560</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Allowance for borrowed funds used during construction</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(12,254</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(8,284</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">158,774</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">158,582</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">NET INCOME</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">342,886</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">274,384</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Less: Net income attributable to noncontrolling interests (Note 7)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">15,034</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">14,254</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDER</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">327,852</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">260,130</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt">See Notes to Pinnacle West&#146;s Condensed Consolidated Financial Statements and Supplemental Notes to Arizona Public Service Company&#146;s Condensed Consolidated Financial Statements. </DIV> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->45<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>ARIZONA PUBLIC SERVICE COMPANY<BR> CONDENSED CONSOLIDATED BALANCE SHEETS</B><BR> (unaudited)<BR> (dollars in thousands) </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="72%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">September 30,</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">December 31,</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">ASSETS</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">PROPERTY, PLANT AND EQUIPMENT</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Plant in service and held for future use</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">12,982,572</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">12,781,256</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Accumulated depreciation and amortization</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(4,456,017</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(4,326,908</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:45px; text-indent:-15px">Net</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">8,526,555</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">8,454,348</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Construction work in progress</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">555,137</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">460,748</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Palo Verde sale leaseback, net of accumulated depreciation (Note 7)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">140,145</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">146,722</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Intangible assets, net of accumulated amortization</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">178,479</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">164,183</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Nuclear fuel, net of accumulated amortization</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">124,101</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">118,243</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Total property, plant and equipment</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">9,524,417</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">9,344,244</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">INVESTMENTS AND OTHER ASSETS</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Nuclear decommissioning trust (Note 15)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">453,963</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">414,576</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Assets from risk management activities (Note 8)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">54,968</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">28,855</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other assets</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">70,383</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">68,839</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:45px; text-indent:-15px">Total investments and other assets</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">579,314</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">512,270</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">CURRENT ASSETS</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Cash and cash equivalents</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">162,272</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">120,798</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Customer and other receivables</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">359,053</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">280,226</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued unbilled revenues</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">180,006</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">110,971</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Allowance for doubtful accounts</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(7,660</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(6,063</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Materials and supplies (at average cost)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">174,428</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">176,020</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Fossil fuel (at average cost)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">21,826</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">39,245</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Assets from risk management activities (Note 8)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">68,476</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">50,619</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred income taxes</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">81,719</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">53,990</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other current assets</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">42,901</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">25,724</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Total current assets</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,083,021</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">851,530</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">DEFERRED DEBITS</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Regulatory assets</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">879,056</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">813,161</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Income tax receivable (Note 6)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">65,498</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">65,498</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Unamortized debt issue costs</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">19,719</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">20,959</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">77,448</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">73,909</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Total deferred debits</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,041,721</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">973,527</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">TOTAL ASSETS</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">12,228,473</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">11,681,571</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt">See Notes to Pinnacle West&#146;s Condensed Consolidated Financial Statements and Supplemental Notes to Arizona Public Service Company&#146;s Condensed Consolidated Financial Statements. </DIV> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->46<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>ARIZONA PUBLIC SERVICE COMPANY<BR> CONDENSED CONSOLIDATED BALANCE SHEETS</B><BR> (unaudited)<BR> (dollars in thousands) </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="72%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">September 30,</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">December 31,</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">LIABILITIES AND EQUITY</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">CAPITALIZATION</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Common stock</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">178,162</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">178,162</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Additional paid-in capital</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2,379,696</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2,126,863</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Retained earnings</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,421,679</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,250,126</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Accumulated other comprehensive loss:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:45px; text-indent:-15px">Pension and other postretirement benefits</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(31,149</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(29,114</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Derivative instruments</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(120,614</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(80,682</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Total shareholder equity</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,827,774</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,445,355</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Noncontrolling interests (Note 7)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">94,073</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">82,324</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:45px; text-indent:-15px">Total equity</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,921,847</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,527,679</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Long-term debt less current maturities (Note 2)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,349,924</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,180,406</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Palo Verde sale leaseback lessor notes (Notes 2 and 7)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">113,379</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">126,000</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Total capitalization</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">7,385,150</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">6,834,085</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">CURRENT LIABILITIES</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Current maturities of long-term debt (Note 2)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">57,275</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">222,959</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">227,224</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">213,833</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued taxes</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">174,192</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">158,051</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued interest</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">52,112</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">54,099</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Customer deposits</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">68,206</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">70,780</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Liabilities from risk management activities (Note 8)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">55,847</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">55,908</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other current liabilities</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">135,931</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">124,995</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:45px; text-indent:-15px">Total current liabilities</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">770,787</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">900,625</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">DEFERRED CREDITS AND OTHER</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred income taxes</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,840,300</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,582,945</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred fuel and purchased power regulatory liability (Note 3)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">41,385</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">87,291</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other regulatory liabilities</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">685,908</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">679,072</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Liability for asset retirements</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">323,134</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">301,783</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Liabilities for pension and other postretirement benefits (Note 4)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">697,686</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">766,378</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Liabilities from risk management activities (Note 8)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">80,656</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">62,443</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Customer advances</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">127,449</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">136,595</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Coal mine reclamation</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">117,029</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">92,060</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Unrecognized tax benefits (Note 6)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">65,863</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">140,638</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">93,126</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">97,656</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:45px; text-indent:-15px">Total deferred credits and other</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4,072,536</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,946,861</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">COMMITMENTS AND CONTINGENCIES (SEE NOTES)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">TOTAL LIABILITIES AND EQUITY</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">12,228,473</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">11,681,571</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt">See Notes to Pinnacle West&#146;s Condensed Consolidated Financial Statements and Supplemental Notes to Arizona Public Service Company&#146;s Condensed Consolidated Financial Statements. </DIV> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->47<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>ARIZONA PUBLIC SERVICE COMPANY<BR> CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS</B><BR> (unaudited)<BR> (dollars in thousands) </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="72%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 0px solid #000000">Nine Months Ended</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">CASH FLOWS FROM OPERATING ACTIVITIES</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Net Income</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">342,886</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">274,384</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Adjustments to reconcile net income to net cash provided by operating activities:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Depreciation and amortization including nuclear fuel</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">349,267</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">334,092</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:45px; text-indent:-15px">Deferred fuel and purchased power</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">50,020</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(46,743</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Deferred fuel and purchased power amortization</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(95,926</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">115,214</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:45px; text-indent:-15px">Allowance for equity funds used during construction</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(16,417</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(11,919</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Deferred income taxes</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">218,575</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">252,282</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:45px; text-indent:-15px">Change in mark-to-market valuations</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,716</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(5,970</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Changes in current assets and liabilities:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:60px; text-indent:-15px">Customer and other receivables</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(93,394</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(92,535</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:60px; text-indent:-15px">Accrued unbilled revenues</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(69,035</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(56,420</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:60px; text-indent:-15px">Materials, supplies and fossil fuel</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">19,011</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(16,781</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:60px; text-indent:-15px">Other current assets</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(17,177</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(2,473</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:60px; text-indent:-15px">Accounts payable</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">37,150</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(28,018</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:60px; text-indent:-15px">Accrued taxes</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">16,141</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(149,990</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:60px; text-indent:-15px">Other current liabilities</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">6,375</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(740</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Change in margin and collateral accounts &#151; assets</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(4,336</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,251</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:45px; text-indent:-15px">Change in margin and collateral accounts &#151; liabilities</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(143,725</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,564</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Change in regulatory liabilities</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">40,121</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">92,598</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:45px; text-indent:-15px">Change in unrecognized tax benefits</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(72,217</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">92,973</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Change in other long-term assets</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(53,566</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(54,781</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:45px; text-indent:-15px">Change in other long-term liabilities</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(11,686</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">13,473</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Net cash flow provided by operating activities</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">505,783</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">713,461</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">CASH FLOWS FROM INVESTING ACTIVITIES</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Capital expenditures</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(552,331</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(551,042</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Contributions in aid of construction</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">25,258</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">17,393</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Allowance for borrowed funds used during construction</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(12,254</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(8,284</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from nuclear decommissioning trust sales</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">424,255</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">370,399</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Investment in nuclear decommissioning trust</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(442,567</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(386,743</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">9,621</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(1,404</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Net cash flow used for investing activities</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(548,018</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(559,681</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">CASH FLOWS FROM FINANCING ACTIVITIES</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Issuance of long-term debt</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">863,903</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Repayment of long-term debt</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(9,538</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(350,312</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Short-term borrowings and payments-net</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(521,684</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Equity infusion</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">252,833</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Dividends paid on common stock</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(156,300</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(127,500</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Noncontrolling interests</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(3,286</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(3,393</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Net cash flow provided by (used for) financing activities</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">83,709</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(138,986</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">NET INCREASE IN CASH AND CASH EQUIVALENTS</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">41,474</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">14,794</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">120,798</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">71,544</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">CASH AND CASH EQUIVALENTS AT END OF PERIOD</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">162,272</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">86,338</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Supplemental disclosure of cash flow information</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Cash paid during the period for:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Income taxes, net of (refunds)</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">76,364</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">13,555</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:45px; text-indent:-15px">Interest, net of amounts capitalized</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">157,385</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">146,062</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt">See Notes to Pinnacle West&#146;s Condensed Consolidated Financial Statements and Supplemental Notes to Arizona Public Service Company&#146;s Condensed Consolidated Financial Statements. </DIV> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->48<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Certain notes to APS&#146; Condensed Consolidated Financial Statements are combined with the Notes to Pinnacle West&#146;s Condensed Consolidated Financial Statements. Listed below are the Condensed Consolidated Notes to Pinnacle West&#146;s Condensed Consolidated Financial Statements, the majority of which also relate to APS&#146; Condensed Consolidated Financial Statements. In addition, listed below are the Supplemental Notes that are required disclosures for APS and should be read in conjunction with Pinnacle West&#146;s Condensed Consolidated Notes. </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="72%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Condensed</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">APS&#146;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Consolidated</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Supplemental</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Note</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Note</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Reference</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Reference</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidation and Nature of Operations</DIV></TD> <TD>&nbsp;</TD> <TD colspan="3" align="center">Note 1</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term Debt and Liquidity Matters</DIV></TD> <TD>&nbsp;</TD> <TD colspan="3" align="center">Note 2</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Regulatory Matters</DIV></TD> <TD>&nbsp;</TD> <TD colspan="3" align="center">Note 3</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Retirement Plans and Other Benefits</DIV></TD> <TD>&nbsp;</TD> <TD colspan="3" align="center">Note 4</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Business Segments</DIV></TD> <TD>&nbsp;</TD> <TD colspan="3" align="center">Note 5</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Income Taxes</DIV></TD> <TD>&nbsp;</TD> <TD colspan="3" align="center">Note 6</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Variable Interest Entities</DIV></TD> <TD>&nbsp;</TD> <TD colspan="3" align="center">Note 7</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Derivative and Energy Trading Accounting</DIV></TD> <TD>&nbsp;</TD> <TD colspan="3" align="center">Note 8</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Changes in Equity</DIV></TD> <TD>&nbsp;</TD> <TD colspan="3" align="center">Note 9</TD> <TD>&nbsp;</TD> <TD colspan="3" align="center">Note S-1</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Commitments and Contingencies</DIV></TD> <TD>&nbsp;</TD> <TD colspan="3" align="center">Note 10</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Other Income and Other Expense</DIV></TD> <TD>&nbsp;</TD> <TD colspan="3" align="center">Note 11</TD> <TD>&nbsp;</TD> <TD colspan="3" align="center">Note S-2</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Guarantees</DIV></TD> <TD>&nbsp;</TD> <TD colspan="3" align="center">Note 12</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Earnings Per Share</DIV></TD> <TD>&nbsp;</TD> <TD colspan="3" align="center">Note 13</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Discontinued Operations</DIV></TD> <TD>&nbsp;</TD> <TD colspan="3" align="center">Note 14</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Fair Value Measurements</DIV></TD> <TD>&nbsp;</TD> <TD colspan="3" align="center">Note 15</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Real Estate Impairment Charge</DIV></TD> <TD>&nbsp;</TD> <TD colspan="3" align="center">Note 16</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center">&#151;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->49<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>ARIZONA PUBLIC SERVICE COMPANY<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <!-- /xbrl,is --> <!-- xbrl,n --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>S-1. Changes in Equity</B> </DIV> <!-- xbrl,body --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following tables show APS&#146; changes in shareholder equity and changes in equity of noncontrolling interests for the three and nine months ended September&nbsp;30, 2010 and 2009 (dollars in thousands): </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="28%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="7%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="7%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="7%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="7%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="7%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="7%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Three Months Ended September 30, 2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Three Months Ended September 30, 2009</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Shareholder</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Noncontrolling</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Shareholder</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Noncontrolling</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Equity</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Interests</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Total</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Equity</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Interests</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Total</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Beginning balance, July 1</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,605,292</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">88,944</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,694,236</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,284,568</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">83,509</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,368,077</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">226,648</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">5,128</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">231,776</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">197,065</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4,953</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">202,018</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Other comprehensive income (loss):</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Net unrealized gains (losses)&nbsp;on derivative instruments (a)</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(67,856</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(67,856</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4,959</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4,959</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Net reclassification of realized losses to income (b)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">59,801</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">59,801</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">81,660</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">81,660</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Reclassification of pension and other postretirement benefits to income</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,172</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,172</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">999</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">999</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Net income tax benefit (expense)&nbsp;related to items of other comprehensive income (loss)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2,717</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2,717</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(34,644</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(34,644</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total other comprehensive income (loss)</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(4,166</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(4,166</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">52,974</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">52,974</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total comprehensive income</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">222,482</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">5,128</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">227,610</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">250,039</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4,953</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">254,992</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Dividends on common stock</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(42,500</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(42,500</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Equity infusion</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4,571</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4,571</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Other</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(8</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(8</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Ending balance, September 30</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,827,774</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">94,073</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,921,847</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,496,678</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">88,454</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,585,132</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV style="margin-top: 3pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR> <TD width="3%"></TD> <TD width="1%"></TD> <TD width="96%"></TD> </TR> <TR valign="top"> <TD nowrap align="left">(a)</TD> <TD>&nbsp;</TD> <TD>These amounts primarily include unrealized gains and losses on contracts used to hedge our forecasted electricity and natural gas requirements to serve Native Load. These changes are primarily due to changes in forward natural gas prices and wholesale electricity prices.</TD> </TR> <TR style="font-size: 3pt"><TD>&nbsp;</TD></TR> <TR valign="top"> <TD nowrap align="left">(b)</TD> <TD>&nbsp;</TD> <TD>These amounts primarily include the reclassification of unrealized gains and losses to realized gains and losses for contracted commodities delivered during the period.</TD> </TR> </TABLE> </DIV> <!-- xbrl,ig --> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->50<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>ARIZONA PUBLIC SERVICE COMPANY<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <!-- /xbrl,ig --> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="28%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="7%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="7%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="7%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="7%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="7%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="7%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Nine Months Ended September 30, 2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Nine Months Ended September 30, 2009</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Shareholder</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Noncontrolling</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Shareholder</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Noncontrolling</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Equity</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Interests</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Total</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Equity</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Interests</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Total</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Beginning balance, January 1</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,445,355</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">82,324</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,527,679</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,339,150</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">77,601</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,416,751</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">327,852</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">15,034</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">342,886</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">&nbsp;</TD> <TD align="right">260,130</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">14,254</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">274,384</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Other comprehensive income (loss):</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Net unrealized losses on derivative instruments (a)</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(168,110</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(168,110</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(128,035</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(128,035</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Net reclassification of realized losses to income (b)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">102,130</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">102,130</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">154,990</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">154,990</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Reclassification of pension and other postretirement benefits to income</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,499</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,499</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2,991</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2,991</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Net unrealized losses related to pension benefits</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(6,863</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(6,863</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(3,774</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(3,774</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Net income tax benefit (expense)&nbsp;related to items of other comprehensive income (loss)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">27,377</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">27,377</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(10,348</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(10,348</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total other comprehensive income (loss)</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(41,967</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(41,967</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">15,824</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">15,824</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total comprehensive income</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">285,885</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">15,034</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">300,919</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">275,954</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">14,254</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">290,208</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Dividends on common stock</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(156,300</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(156,300</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(127,500</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(127,500</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Equity infusion</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">252,833</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">252,833</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">9,074</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">9,074</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Other</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(3,285</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(3,284</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(3,401</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(3,401</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Ending balance, September 30</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,827,774</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">94,073</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,921,847</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,496,678</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">88,454</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,585,132</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV style="margin-top: 3pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR> <TD width="3%"></TD> <TD width="1%"></TD> <TD width="96%"></TD> </TR> <TR valign="top"> <TD nowrap align="left">(a)</TD> <TD>&nbsp;</TD> <TD>These amounts primarily include unrealized gains and losses on contracts used to hedge our forecasted electricity and natural gas requirements to serve Native Load. These changes are primarily due to changes in forward natural gas prices and wholesale electricity prices.</TD> </TR> <TR style="font-size: 3pt"><TD>&nbsp;</TD></TR> <TR valign="top"> <TD nowrap align="left">(b)</TD> <TD>&nbsp;</TD> <TD>These amounts primarily include the reclassification of unrealized gains and losses to realized gains and losses for contracted commodities delivered during the period.</TD> </TR> </TABLE> </DIV> <!-- xbrl,ig --> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->51<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <!-- xbrl --> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>ARIZONA PUBLIC SERVICE COMPANY<BR> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B> </DIV> <!-- /xbrl,ig --> <!-- xbrl,n --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>S-2. Other Income and Other Expense</B> </DIV> <!-- xbrl,body --> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table provides detail of APS&#146; other income and other expense for the three and nine months ended September&nbsp;30, 2010 and 2009 (dollars in thousands): </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="44%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Three Months Ended</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Nine Months Ended</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Other income:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Interest income</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">373</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">63</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">2,653</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">402</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Investment gains &#151; net</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2,574</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3,320</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,038</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">5,189</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Miscellaneous</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">15</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">147</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">181</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,989</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total other income</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">2,962</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,530</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">3,872</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">7,580</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Other expense:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Non-operating costs (a)</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(2,969</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(1,714</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(6,453</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(6,225</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Asset dispositions</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(186</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(182</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(395</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(540</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Miscellaneous</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(919</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(894</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(4,243</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(4,033</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total other expense</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(4,074</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(2,790</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(11,091</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(10,798</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV style="margin-top: 3pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR> <TD width="3%"></TD> <TD width="1%"></TD> <TD width="96%"></TD> </TR> <TR valign="top"> <TD nowrap align="left">(a)</TD> <TD>&nbsp;</TD> <TD>As defined by the FERC, includes below-the-line non-operating utility income and expense (items excluded from utility rate recovery).</TD> </TR> </TABLE> </DIV> <!-- /xbrl,ns --> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->52<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="left"> <A name="106"></A> </DIV> <DIV align="left" style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; background: transparent; color: #000000"> <TR> <TD width="7%"></TD> <TD width="1%"></TD> <TD></TD> </TR> <TR valign="top"> <TD nowrap align="left"><B>ITEM 2.</B></TD> <TD>&nbsp;</TD> <TD><B>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</B></TD> </TR> </TABLE> </DIV> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>INTRODUCTION</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following discussion should be read in conjunction with Pinnacle West&#146;s Condensed Consolidated Financial Statements and Arizona Public Service Company&#146;s Condensed Consolidated Financial Statements and the related Notes that appear in Item&nbsp;1 of this report. For purposes of this report, a &#147;Note&#148; refers to a Note to Pinnacle West&#146;s Condensed Consolidated Financial Statements in Item&nbsp;1 of this report. For information on the broad factors that may cause our actual future results to differ from those we currently seek or anticipate, see &#147;Forward-Looking Statements&#148; at the front of this report and &#147;Risk Factors&#148; in Item&nbsp;1A of the 2009 Form 10-K. </DIV> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>OVERVIEW</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Pinnacle West owns all of the outstanding common stock of APS. APS is a vertically-integrated electric utility that provides either retail or wholesale electric service to most of the state of Arizona, with the major exceptions of about one-half of the Phoenix metropolitan area, the Tucson metropolitan area and Mohave County in northwestern Arizona. APS accounts for substantially all of our revenues and earnings, and is expected to continue to do so. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Areas of Business Focus</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>Nuclear</I></B><B>. </B>APS operates and is a joint-owner of the Palo Verde Nuclear Generating Station. With a focus on safely and efficiently generating electricity for the long-term, APS applied for twenty-year renewals of its operating licenses for each of the three Palo Verde units, and is making preparations to secure necessary resources to operate the plant during this extended period of time. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>Coal and Related Environmental Matters</I></B><B>. </B>APS is a joint-owner of three coal-fired power plants and acts as operating agent for two of the plants. APS is focused on the impacts on its coal fleet that may result from potential legislation and increased regulation concerning greenhouse gas emissions. Recent concern over climate change and other emission-related issues could have a significant impact on APS&#146; capital expenditures and operating costs in the form of taxes, emissions allowances or required equipment upgrades for these plants. APS is closely monitoring its long range capital management plans, understanding that the resulting legislation and regulation could impact the economic viability of certain plants, as well as the willingness or ability of power plant participants to fund any such equipment upgrades. In particular, on October&nbsp;6, 2010, the EPA issued its proposed determination for &#147;Best Available Retrofit Technology&#148; (BART) requirements for the Four Corners Power Plant (&#147;Four Corners&#148;) that, as proposed, would require installation of additional pollution control equipment on all five of the plant&#146;s units. APS estimates that its total costs for the proposed controls could be up to approximately $422 million for nitrogen oxide controls and about $220 million for particulate removal equipment. It is currently evaluating the impacts of the proposed determination and intends to submit comments during the EPA's comment period. (See "Environmental Matters &#150; Regional Haze Rules" in Part II, Item 5.) In addition, Southern California Edison, a participant in Four Corners, has indicated that certain California legislation may prohibit it from making emission control expenditures at the plant. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>Transmission and Delivery</I></B><B>. </B>APS&#146; 2010 transmission plan projects that it will invest approximately $520&nbsp;million in new transmission over the next ten years, which includes 270 miles of new lines. APS is working closely with regulators to identify and plan for transmission needs resulting from the current focus on renewable energy. APS is also working to establish and expand smart grid technology throughout its service territory designed to provide a variety of benefits both to APS and its customers. This technology is designed to allow customers to better monitor their energy use and needs, minimize system outage durations and the number of customers that experience outages, and facilitate cost savings to APS through improved reliability and the automation of certain distribution functions, including remote meter reading and remote connects and disconnects. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->53<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>Renewable Energy</I></B><B>. </B>APS is committed to increasing the amount of energy produced by renewable energy resources. The ACC approved the RES in 2006, recognizing the importance of renewable energy to our state. In the Settlement Agreement for the 2008 general retail rate case, APS agreed to exceed the RES standards, committing that approximately 10% of APS&#146; energy will come from renewable resources by the year 2015. A component of the original RES is focused on stimulating development of distributed energy systems (generally speaking, small-scale renewable technologies that are located on customers&#146; properties). As of September&nbsp;30, 2010, customers have installed 41 MW of distributed energy system through APS&#146; renewable incentive programs. A variety of other provisions in the Settlement Agreement reinforce APS&#146; dedication to renewable energy through initiatives such as building photovoltaic solar plants, seeking an Arizona wind generation project and installing solar rooftop panels on schools and government buildings. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">To procure the additional renewable resources required under our Settlement Agreement, APS issued three requests for proposals (&#147;RFPs&#148;) for renewable resources in the first half of 2010. The first RFP was for wind projects between 15 and 100 MW to be located within Arizona. The second RFP was for utility-scale solar photovoltaic (&#147;PV&#148;) projects between 15 and 50 MW. The third RFP, the 2010 Small Generation RFP, serves as the first in a series of solicitations that will focus on a broad base of renewable technologies for projects between 2 and 15 MW. Resulting from these and prior solicitations, as of September&nbsp;30, 2010, APS has entered into two long-term power purchase contracts, the first for a 15&nbsp;MW solar PV project located in Bagdad, Arizona and the second for a 99&nbsp;MW wind project located north of Williams, Arizona, known as Perrin Ranch Wind. Each of these agreements is subject to various conditions, including successful siting, permitting and interconnection of the project to the electric grid. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On March&nbsp;3, 2010, the ACC approved the AZ Sun Program, under which APS plans to own 100 MW of solar PV power plants across Arizona by investing up to $500&nbsp;million through 2014. See Note 3 for additional details of this program, including the related cost recovery. APS expects to acquire these resources through competitive procurement processes, with projects being placed into service in the 2011 to 2014 timeframe. The ultimate timing of these projects will depend on the outcome of current and future procurement processes. APS plans to invest approximately $150&nbsp;million to develop the following two projects announced to date: </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="58%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="11%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="11%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="11%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center"><B>Expected</B></TD> <TD>&nbsp;</TD> <TD nowrap align="center">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center"><B>Commercial</B></TD> <TD>&nbsp;</TD> <TD nowrap align="center">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>AZ Sun Program Contracts:</B></TD> <TD>&nbsp;</TD> <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Capacity</B></TD> <TD>&nbsp;</TD> <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Operation Date</B></TD> <TD>&nbsp;</TD> <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Type</B></TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Glendale, AZ</DIV></TD> <TD>&nbsp;</TD> <TD align="right" valign="top">15 MW</TD> <TD>&nbsp;</TD> <TD align="left" valign="top">Summer 2011</TD> <TD>&nbsp;</TD> <TD align="left" valign="top">Solar PV</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Gila Bend, AZ</DIV></TD> <TD>&nbsp;</TD> <TD align="right" valign="top">18 MW</TD> <TD>&nbsp;</TD> <TD align="left" valign="top">Late 2011</TD> <TD>&nbsp;</TD> <TD align="left" valign="top">Solar PV</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Amount Remaining Under AZ Sun Program</DIV></TD> <TD>&nbsp;</TD> <TD align="right" valign="top">67 MW</TD> <TD>&nbsp;</TD> <TD align="left" valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left" valign="top">&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="1" align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left" valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left" valign="top">&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">TOTAL AZ Sun Program</DIV></TD> <TD>&nbsp;</TD> <TD align="right" valign="top">100 MW</TD> <TD>&nbsp;</TD> <TD align="left" valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left" valign="top">&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="1" align="center" valign="top" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left" valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left" valign="top">&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->54<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>Energy Efficiency. </I></B>Arizona regulators are placing an increased focus on energy efficiency and demand side management programs to encourage customers to conserve energy, while incentivizing utilities to aid in these efforts that ultimately reduce the demand for energy. In December&nbsp;2009, the ACC initiated Energy Efficiency rulemaking, with a proposed Energy Efficiency Standard of 22% annual energy savings by 2020. The 22% figure represents the cumulative reduction in future energy usage through 2020 attributable to energy efficiency initiatives. On July&nbsp;27, 2010, the proposed Energy Efficiency Standard was approved by the ACC subject to review and approval by the Arizona Attorney General, which should be completed before the end of 2010. An ambitious standard, such as that approved by the ACC, will increase participation by APS customers in these conservation and energy efficiency programs, which in turn will impact Arizona&#146;s future energy resource needs. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>Rate Matters. </I></B>APS needs timely recovery through rates of its capital and operating expenditures to maintain adequate financial health. APS&#146; retail rates are regulated by the ACC and its wholesale electric rates (primarily for transmission) are regulated by the FERC. At the end of 2009, the ACC approved a settlement agreement entered into by APS and twenty-one of the twenty-three other parties to APS&#146; general retail rate case, with modifications that did not materially affect the overall economic terms of the agreement. The rate case settlement should strengthen APS&#146; financial condition by allowing for rate stability and a greater level of cost recovery and return on investment. It also authorizes and requires equity infusions into APS of at least $700&nbsp;million prior to the end of 2014 ($253&nbsp;million of which was infused into APS from proceeds of a Pinnacle West equity issuance in the second quarter of 2010 (see Note 2)). The settlement demonstrates cooperation among APS, the ACC staff, the Residential Utility Consumer Office and other intervenors to the rate case, and sets forth a future rate case filing plan that allows APS the opportunity to help shape Arizona&#146;s energy future outside of continual rate cases. See Note 3 for a discussion of the Settlement Agreement terms and information on APS&#146; FERC rates. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">APS has several recovery mechanisms in place that provide more timely recovery to APS of its fuel and transmission costs, and costs associated with the promotion and implementation of its energy efficiency, demand-side management and renewable energy efforts and customer programs. These mechanisms are described more fully in Note 3. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On October 18, 2010, the Chairman of the ACC issued a draft decoupling policy statement. Decoupling refers to a ratemaking design which reduces or removes the linkage between sales and utility revenues and/or profits, reducing utility disincentives to the adoption of programs that benefit customers by saving energy. Mechanically, decoupling compares actual versus authorized revenues or revenue per customer over a period and either credits or collects any differences from customers in a subsequent period. The draft policy is supportive of decoupling using a revenue-per-customer methodology, which is the mechanism APS and a number of other parties support because it recognizes increased costs associated with additional customers. The draft policy would allow a utility to file a decoupling plan in its next general rate case. Subsequent steps by the ACC prior to approving any policy statement will likely depend on the nature and extent of the comments received from various stakeholders. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>Financial Strength and Flexibility. </I></B>Pinnacle West and APS currently have ample borrowing capacity under their respective credit facilities and have been able to access these facilities as well as the commercial paper market, ensuring adequate liquidity for each company. In early February&nbsp;2010, APS entered into a $500&nbsp;million revolving credit facility, replacing its $377 million facility that would have otherwise terminated in December&nbsp;2010. At that same time, Pinnacle West entered into a $200&nbsp;million revolving credit facility that replaced its $283&nbsp;million facility that also would have otherwise terminated in December&nbsp;2010. Since March&nbsp;2010, Pinnacle West and APS have accessed the commercial paper markets, which neither company had utilized since the third quarter of 2008 due to negative market conditions. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In April&nbsp;2010, Pinnacle West issued 6,900,000 shares of common stock at an offering price of $38.00 per share, resulting in net proceeds of approximately $253&nbsp;million. Pinnacle West contributed all of the net proceeds from this offering into APS in the form of equity infusions. APS has used these capital contributions to repay short-term indebtedness, to finance capital expenditures and for other general corporate purposes. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->55<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Since the beginning of the third quarter, APS changed the interest rate modes on approximately $180&nbsp;million of its pollution control bonds from daily rate modes to term rate modes. The letters of credit supporting each of these series of bonds were terminated in conjunction with the rate changes. See Note 2 for additional details of these changes. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>SunCor Real Estate Operations. </I></B>As a result of the distressed conditions in the real estate markets, during 2009 SunCor undertook a program to dispose of its homebuilding operations, master-planned communities, land parcels, commercial assets and golf courses in order to reduce its outstanding debt. In July&nbsp;2010, SunCor sold land parcels, commercial assets and a master planned home-building community for approximately $70&nbsp;million, which approximated the carrying value of these assets, resulting in a net gain of zero. In connection with this sale, SunCor negotiated a restructuring of certain of its credit facilities, including its principal loan facility. The debt restructuring resulted in an after-tax gain of approximately $9&nbsp;million, which was recognized in the third quarter of 2010. At September&nbsp;30, 2010, SunCor had approximately $22&nbsp;million of assets on its balance sheet classified as assets held for sale. These assets consisted of $18&nbsp;million of consolidated VIEs (see Note 7), master planned home-building communities and golf courses. Because it is expected that SunCor will dispose of these assets within the next 12&nbsp;months, they are classified as assets held for sale on the balance sheet. See &#147;Pinnacle West Consolidated &#151; Liquidity and Capital Resources &#151; Other Subsidiaries &#151; SunCor&#148; below for a discussion of SunCor&#146;s outstanding debt and related matters and Note 16 for a discussion of related impairment charges. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>Other Subsidiary Matters. </I></B>The operations of APSES and our other first tier subsidiary, El Dorado, are not expected to have any material impact on our financial results, or to require any material amounts of capital, over the next three years. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Key Financial Drivers</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In addition to the continuing impact of the matters described above, many factors influence our financial results and our future financial outlook, including those listed below. We closely monitor these factors to plan for the Company&#146;s current needs, and to adjust our expectations, financial budgets and forecasts appropriately. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>Regulated Electricity Segment Revenues. </I></B>For the years 2007 through 2009, retail electric revenues comprised approximately 94% of our total electric operating revenues. Our electric operating revenues are affected by customer growth or decline, variations in weather from period to period, customer mix, average usage per customer and the impacts of energy efficiency programs, electricity rates and tariffs, the recovery of PSA deferrals and the operation of other recovery mechanisms. Off-system sales of excess generation output, purchased power and natural gas are included in regulated electricity segment revenues and related fuel and purchased power because they are credited to APS&#146; retail customers through the PSA. These revenue transactions are affected by the availability of excess generation or other energy resources and wholesale market conditions, including competition, demand and prices. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>Customer and Sales Growth. </I></B>Customer growth in APS&#146; service territory for the nine-month period ended September&nbsp;30, 2010 was 0.6% compared with the prior year period. For the three years 2007 through 2009, APS&#146; customer growth averaged 1.8% per year. We currently expect annual customer growth to average about 1% for 2010 through 2012 due to economic conditions both nationally and in Arizona. Retail sales in kilowatt-hours, adjusted to exclude the effects of weather variations, for the nine-month period ended September&nbsp;30, 2010 declined 1.0% compared to the same period in the prior year, reflecting the poor economic conditions and the effects of our energy efficiency programs. For the three years 2007 through 2009, APS&#146; actual retail electricity sales in kilowatt-hours, adjusted to exclude the effects of weather variations, grew at an average annual rate of 0.2%. We currently estimate that total annual retail electricity sales in kilowatt-hours will remain flat on average during 2010 through 2012, including the effects of APS&#146; energy efficiency programs, but excluding the effects of weather variations. A continuation of the economic downturn, or the failure of the Arizona economy to rebound in the near future, could further impact these estimates. The customer and sales growth referred to in this paragraph apply to Native Load customers. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->56<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Actual sales growth, excluding weather-related variations, may differ from our projections as a result of numerous factors, such as economic conditions, customer growth or decline, usage patterns, impacts of energy efficiency programs and responses to retail price changes. Our experience indicates that a reasonable range of variation in our kilowatt-hour sales projection attributable to such economic factors under normal business conditions can result in increases or decreases in annual net income of up to $10&nbsp;million. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>Weather. </I></B>In forecasting the retail sales growth numbers provided above, we assume normal weather patterns based on historical data. Historical extreme weather variations have resulted in annual variations in net income in excess of $20&nbsp;million. However, our experience indicates that the more typical variations from normal weather can result in increases or decreases in annual net income of up to $10&nbsp;million. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>Fuel and Purchased Power Costs. </I></B>Fuel and purchased power costs included on our Condensed Consolidated Statements of Income are impacted by our electricity sales volumes, existing contracts for purchased power and generation fuel, our power plant performance, transmission availability or constraints, prevailing market prices, new generating plants being placed in service in our market areas, our hedging program for managing such costs and PSA deferrals and the related amortization. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>Operations and Maintenance Expenses</I></B><B>. </B>Operations and maintenance expenses are impacted by growth, power plant operations, maintenance of utility plant (including generation, transmission, and distribution facilities), inflation, outages, higher-trending pension and other postretirement benefit costs, renewable energy and demand side management related expenses (which are offset by the same amount of regulated electricity segment operating revenues) and other factors. In its retail rate case settlement, APS committed to operational expense reductions from 2010 through 2014 and received approval to defer certain pension and other postretirement benefit cost increases to be incurred in 2011 and 2012. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>Depreciation and Amortization Expenses. </I></B>Depreciation and amortization expenses are impacted by net additions to utility plant and other property (such as new generation, transmission, and distribution facilities), and changes in depreciation and amortization rates. The &#147;Capital Expenditures&#148; section below provides information regarding the planned additions to our facilities. We have also applied to the NRC for renewed operating licenses for each of the Palo Verde units. If the NRC grants the extension, we estimate that our annual pretax depreciation expense will decrease by approximately $34&nbsp;million at the later of the license extension date or January&nbsp;1, 2012. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>Property Taxes. </I></B>Taxes other than income taxes consist primarily of property taxes, which are affected by the value of property in-service and under construction, assessment ratios, and tax rates. The average property tax rate for APS, which currently owns the majority of our property, was 7.5% of the assessed value in 2009 and 7.8% of the assessed value in 2008. We expect property taxes to increase as we add new utility plants (including new generation, transmission and distribution facilities) and as we improve our existing facilities. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->57<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>Income Taxes</I></B><B>. </B>Income taxes are affected by the amount of pre-tax book income, income tax rates, and certain non-taxable items, such as the allowance for equity funds used during construction. In addition, income taxes may also be affected by the settlement of issues with taxing authorities. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>Interest Expense. </I></B>Interest expense is affected by the amount of debt outstanding and the interest rates on that debt (see Note 2). The primary factors affecting borrowing levels are expected to be our capital expenditures, long-term debt maturities, and internally generated cash flow. An allowance for borrowed funds offsets a portion of interest expense while capital projects are under construction. We stop accruing the allowance for borrowed funds on a project when it is placed in commercial operation. </DIV> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CONSOLIDATED &#151; RESULTS OF OPERATIONS</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our results of operations, provided below, are based upon our two reportable business segments: </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="4%" style="background: transparent">&nbsp;</TD> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>our regulated electricity segment, which consists of traditional regulated retail and wholesale electricity businesses (primarily retail and wholesale sales supplied to Native Load customers) and related activities and includes electricity generation, transmission and distribution; and</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="4%" style="background: transparent">&nbsp;</TD> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>our real estate segment, which consists of SunCor&#146;s real estate development and investment activities. All of SunCor&#146;s operations are reflected in discontinued operations (see Notes 5 and 14). The real estate segment activities are presented separately in the period-over-period discussions that follow.</TD> </TR> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Operating Results &#151; Three-month period ended September&nbsp;30, 2010 compared with three-month period ended September&nbsp;30, 2009</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our consolidated net income attributable to common shareholders for the three months ended September&nbsp;30, 2010 was $234&nbsp;million, compared with net income of $187&nbsp;million for the comparable prior-year period. The $47&nbsp;million variance consists of a $29&nbsp;million increase in income from continuing operations and an $18&nbsp;million increase from discontinued operations (primarily real estate segment). As discussed in greater detail below, the improved results reflect an increase of approximately $25&nbsp;million in regulated electricity segment net income primarily due to increased revenues related to APS&#146; retail rate increases, partially offset by increased operations and maintenance expenses. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->58<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table presents net income attributable to common shareholders by business segment compared with the prior-year period: </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="58%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Three Months Ended</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Net Change</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="10">(dollars in millions)</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Regulated Electricity Segment:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Operating revenues less fuel and purchased power expenses</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">762</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">702</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">60</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Operations and maintenance</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(220</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(195</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(25</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation and amortization</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(104</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(103</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(1</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Taxes other than income taxes</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(38</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(34</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(4</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Other income (expenses), net</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(2</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Interest charges, net of allowance for funds used during construction</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(48</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(56</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">8</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(122</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(111</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(11</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Noncontrolling interests (Note 7)</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(5</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(5</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Regulated electricity segment net income</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">225</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">200</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">25</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">All other (a)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(2</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Income from Continuing Operations Attributable to Common Shareholders</B></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right"><B>227</B></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right"><B>198</B></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right"><B>29</B></TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Real Estate Segment:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Real estate impairment charges (Note 16)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(38</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">38</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Other real estate operations</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">13</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">18</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(5</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(5</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">8</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(13</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Real estate segment net income (loss)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">8</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(12</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">20</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">All other (a)</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(1</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(2</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Income (Loss) from Discontinued Operations Attributable to Common Shareholders</B></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right"><B>7</B></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right"><B>(11</B></TD> <TD nowrap><B>)</B></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right"><B>18</B></TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Net Income Attributable to Common Shareholders</B></DIV></TD> <TD>&nbsp;</TD> <TD align="left"><B>$</B></TD> <TD align="right"><B>234</B></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left"><B>$</B></TD> <TD align="right"><B>187</B></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left"><B>$</B></TD> <TD align="right"><B>47</B></TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV style="margin-top: 3pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR> <TD width="3%"></TD> <TD width="1%"></TD> <TD width="96%"></TD> </TR> <TR valign="top"> <TD nowrap align="left">(a)</TD> <TD>&nbsp;</TD> <TD>Includes activities related to APSES and El Dorado. None of the activities of either of these companies constitutes a reportable segment.</TD> </TR> </TABLE> </DIV> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->59<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Regulated electricity segment</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">This section includes a discussion of major variances in income and expense amounts for the regulated electricity segment. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B>Operating revenues less fuel and purchased power expenses </B>Regulated electricity segment operating revenues less fuel and purchased power expenses were $60&nbsp;million higher for the three months ended September&nbsp;30, 2010 compared with the prior-year period. The following table describes the major components of this change: </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="58%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Increase (Decrease)</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Fuel and</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">purchased</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Operating</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">power</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">revenues</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">expenses</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Net change</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="10">(dollars in millions)</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Retail regulatory settlement effective January&nbsp;1, 2010:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Retail base rate increases, net of deferrals</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">98</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">43</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">55</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Line extension revenues (Note 3)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">6</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">6</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Transmission rate decreases</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(1</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(1</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Higher demand-side management and renewable energy surcharges (substantially offset in operations and maintenance expense)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">11</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">11</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Effects of weather on retail sales</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">6</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Lower retail revenues related to recovery of PSA deferrals, substantially offset by lower amortization of fuel and purchased power expense</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(90</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(92</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Higher fuel and purchased power costs including the effects of higher off-system sales, net of related PSA deferrals</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">22</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">24</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(2</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Lower retail sales primarily due to lower usage per customer, including the effects of the Company&#146;s energy efficiency programs, but excluding the effects of weather</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(15</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(5</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(10</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Miscellaneous items, net</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(4</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(5</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">33</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(27</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">60</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B>Operations and maintenance </B>Operations and maintenance expenses increased $25&nbsp;million for the three months ended September&nbsp;30, 2010 compared with the prior-year period primarily because of: </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="4%" style="background: transparent">&nbsp;</TD> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>An increase of $8&nbsp;million related to demand-side management and renewable energy programs, which are primarily offset in operating revenues;</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="4%" style="background: transparent">&nbsp;</TD> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>An increase of $6&nbsp;million related to employee benefits costs; and</TD> </TR> <TR> <TD style="font-size: 8pt">&nbsp;</TD> </TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="4%" style="background: transparent">&nbsp;</TD> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>An increase of $4&nbsp;million in generation costs, including the acceleration of fossil-plant planned maintenance.</TD> </TR> </TABLE> </DIV><P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->60<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV style="margin-top: 10pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B>Interest charges, net of allowance for funds used during construction </B>Interest charges, net of allowance for funds used during construction, decreased $8&nbsp;million for the three months ended September&nbsp;30, 2010 compared with the prior-year period primarily because of higher rates in the current year for the allowance for equity and borrowed funds used during construction. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B>Income taxes </B>Income taxes were $11&nbsp;million higher for the three months ended September&nbsp;30, 2010 compared with the prior-year period primarily because of higher pretax income in the current-year period. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Real estate segment</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">As of September&nbsp;30, 2010, all of SunCor&#146;s operations have been reclassified to discontinued operations. The real estate segment net income attributable to common shareholders was $20&nbsp;million higher for the three months ended September&nbsp;30, 2010 compared with the prior-year period primarily because of: </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="4%" style="background: transparent">&nbsp;</TD> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>A decrease in real estate impairment charges of $38&nbsp;million;</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="4%" style="background: transparent">&nbsp;</TD> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>A decrease in income from other real estate operations of $5&nbsp;million primarily due to a gain from debt restructuring of approximately $14&nbsp;million recorded in the current-year period (see Note 2) compared with income from parcel sales in the prior-year period; and</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="4%" style="background: transparent">&nbsp;</TD> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>An increase in income taxes of $13&nbsp;million primarily because of higher pretax income in the current-year period.</TD> </TR> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Operating Results &#151; Nine-month period ended September&nbsp;30, 2010 compared with nine-month period ended September&nbsp;30, 2009</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our consolidated net income attributable to common shareholders for the nine months ended September&nbsp;30, 2010 was $343&nbsp;million, compared with $98&nbsp;million for the comparable prior-year period. The improved results were primarily due to lower real estate impairment charges recorded in 2010 compared with the prior-year period by SunCor. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In addition, regulated electricity segment net income increased approximately $63&nbsp;million from the prior-year period due to increased revenues related to APS&#146; retail rate increases and other factors, partially offset by milder weather in the second quarter of 2010. Our consolidated results for 2010 also include a gain of $25&nbsp;million after income taxes related to the sale of APSES&#146; district cooling business. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->61<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table presents net income (loss)&nbsp;attributable to common shareholders by business segment compared with the prior-year period: </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="58%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Nine Months Ended</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Net Change</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="10">(dollars in millions)</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Regulated Electricity Segment:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Operating revenues less fuel and purchased power expenses</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">1,706</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">1,578</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">128</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Operations and maintenance</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(639</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(603</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(36</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation and amortization</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(308</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(304</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(4</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Taxes other than income taxes</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(101</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(101</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Other income (expenses), net</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(5</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(6</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Interest charges, net of allowance for funds used during construction</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(152</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(156</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(166</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(143</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(23</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Noncontrolling interests (Note 7)</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(15</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(15</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Regulated electricity segment net income</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">320</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">257</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">63</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">All other (a)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(8</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">11</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Income from Continuing Operations Attributable to Common Shareholders</B></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right"><B>323</B></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right"><B>249</B></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right"><B>74</B></TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Real Estate Segment:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Real estate impairment charges (Note 16)</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(17</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(246</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">229</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Other real estate operations</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">7</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(6</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">13</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">99</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(95</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Real estate segment net loss</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(6</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(153</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">147</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">All other (a)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">26</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">24</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Income (Loss) from Discontinued Operations Attributable to Common Shareholders</B></DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right"><B>20</B></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right"><B>(151</B></TD> <TD nowrap><B>)</B></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right"><B>171</B></TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Net Income Attributable to Common Shareholders</B></DIV></TD> <TD>&nbsp;</TD> <TD align="left"><B>$</B></TD> <TD align="right"><B>343</B></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left"><B>$</B></TD> <TD align="right"><B>98</B></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left"><B>$</B></TD> <TD align="right"><B>245</B></TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV style="margin-top: 3pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR> <TD width="3%"></TD> <TD width="1%"></TD> <TD width="96%"></TD> </TR> <TR valign="top"> <TD nowrap align="left">(a)</TD> <TD>&nbsp;</TD> <TD>Includes activities related to APSES and El Dorado. None of the activities of either of these companies constitutes a reportable segment. Income from discontinued operations for the period ended September&nbsp;30, 2010 includes a gain of $25&nbsp;million after income taxes related to the sale of APSES&#146; district cooling business.</TD> </TR> </TABLE> </DIV> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->62<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Regulated electricity segment</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">This section includes a discussion of major variances in income and expense amounts for the regulated electricity segment. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B>Operating revenues less fuel and purchased power expenses </B>Regulated electricity segment operating revenues less fuel and purchased power expenses were $128&nbsp;million higher for the nine months ended September&nbsp;30, 2010 compared with the prior-year period. The following table describes the major components of this change: </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="58%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Increase (Decrease)</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Fuel and</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">purchased</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Operating</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">power</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">revenues</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">expenses</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Net change</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="10">(dollars in millions)</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Retail regulatory settlement effective January&nbsp;1, 2010:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Retail base rate increases, net of deferrals</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">217</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">100</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">117</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Line extension revenues (Note 3)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">14</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">14</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Transmission rate increases</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">8</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">8</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Higher demand-side management and renewable energy surcharges (substantially offset in operations and maintenance expense)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">26</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">26</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Lower retail revenues related to recovery of PSA deferrals, substantially offset by lower amortization of fuel and purchased power expense</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(211</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(216</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">5</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Higher fuel and purchased power costs including the effects of higher off-system sales, net of related PSA deferrals</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">24</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">29</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(5</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Lower retail sales primarily due to lower usage per customer, including the effects of the Company&#146;s energy efficiency programs, but excluding the effects of weather</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(16</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(7</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(9</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Effects of weather on retail sales, primarily due to milder weather in the second quarter 2010</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(27</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(8</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(19</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Miscellaneous items, net</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(7</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(9</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">28</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(100</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">128</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B>Operations and maintenance </B>Operations and maintenance expenses increased $36&nbsp;million for the nine months ended September&nbsp;30, 2010 compared with the prior-year period primarily because of: </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="4%" style="background: transparent">&nbsp;</TD> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>An increase of $20&nbsp;million related to demand-side management and renewable energy programs, which are primarily offset in operating revenues;</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="4%" style="background: transparent">&nbsp;</TD> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>An increase of $7&nbsp;million related to employee benefits costs; and</TD> </TR> <TR> <TD style="font-size: 8pt">&nbsp;</TD> </TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="4%" style="background: transparent">&nbsp;</TD> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>An increase of $5&nbsp;million related to customer service and other costs.</TD> </TR> </TABLE> </DIV><P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->63<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV style="margin-top: 10pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B>Income taxes </B>Income taxes were $23&nbsp;million higher for the nine months ended September&nbsp;30, 2010 compared with the prior-year period primarily because of higher pretax income in the current-year period, partially offset by $11&nbsp;million related to a reduction in the Company&#146;s 2010 effective income tax rate. See Note 6. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>All other</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">All other earnings from continuing operations were $11&nbsp;million higher for the nine months ended September&nbsp;30, 2010 compared to the prior-year period primarily because of improved margins from APSES&#146; products and services business and investment losses at El Dorado in 2009. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Real estate segment</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">During the first quarter of 2009, SunCor&#146;s Board of Directors authorized a series of strategic transactions to dispose of SunCor&#146;s assets. This decision resulted in impairment charges of approximately $246&nbsp;million pretax in the first nine months of 2009. As of September&nbsp;30, 2010, all of SunCor&#146;s operations have been reclassified to discontinued operations (see Note 14). The real estate segment net loss attributable to common shareholders was $147&nbsp;million lower for the nine months ended September&nbsp;30, 2010 compared with the prior-year period primarily because of: </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="4%" style="background: transparent">&nbsp;</TD> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>A decrease in real estate impairment charges of $229&nbsp;million;</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="4%" style="background: transparent">&nbsp;</TD> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>An increase in income from other real estate operations of $13&nbsp;million primarily due to a gain from debt restructuring of approximately $14&nbsp;million recorded in the current-year period (see Note 2); and</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="4%" style="background: transparent">&nbsp;</TD> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>A decrease in income tax benefits of $95&nbsp;million primarily because of a lower net loss for the 2010 period.</TD> </TR> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>All other</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">All other earnings from discontinued operations were $24&nbsp;million higher for the nine months ended September&nbsp;30, 2010 compared to the prior-year period primarily because of a gain of $25 million after income taxes related to the sale of APSES&#146; district cooling business in 2010. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->64<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>PINNACLE WEST CONSOLIDATED &#151; LIQUIDITY AND CAPITAL RESOURCES</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Cash Flows</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table presents net cash provided by (used for) operating, investing and financing activities for the nine months ended September&nbsp;30, 2010 and 2009 (dollars in millions): </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="72%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Nine Months Ended</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash flow provided by operating activities</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">570</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">771</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash flow used for investing activities</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(377</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(537</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash flow used for financing activities</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(142</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(239</TD> <TD nowrap>)</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The decrease of approximately $201&nbsp;million in net cash provided by operating activities is primarily due to changes in collateral and margin cash provided as a result of changes in commodity prices and a voluntary pension contribution in 2010 of approximately $100&nbsp;million; partially offset by other changes in working capital. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The decrease of approximately $160&nbsp;million in net cash used for investing activities is primarily due to approximately $100&nbsp;million of proceeds from the sale of the district cooling business in June&nbsp;2010 and the proceeds from the sale of commercial real estate investments in 2010 of approximately $70&nbsp;million. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The decrease of approximately $97&nbsp;million in net cash used for financing activities is primarily due to lower levels of repayment of short-term borrowings in 2010 offset by lower net sources of equity and long-term debt financing including the proceeds of approximately $253&nbsp;million from the issuance of equity in April&nbsp;2010 and APS&#146; issuance of $500&nbsp;million of unsecured senior notes in 2009. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Liquidity</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>Capital Expenditure Requirements</I></B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table summarizes the actual capital expenditures for the nine months ended September&nbsp;30, 2009 and 2010 and the estimated capital expenditures for the next three years: </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->65<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>CAPITAL EXPENDITURES</B><BR> (dollars in millions) </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="30%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Nine Months Ended</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="10">Estimated for the Year Ended</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">December 31,</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010 (a)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2012</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">APS</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Generation:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:45px; text-indent:-15px">Nuclear Fuel</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">64</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">63</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">63</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">68</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">65</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Renewables</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">14</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">225</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">184</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:45px; text-indent:-15px">Environmental</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">30</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">20</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">80</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">220</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Other Generation</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">88</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">126</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">167</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">147</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">134</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Distribution</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">172</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">183</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">271</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">333</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">328</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Transmission</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">159</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">83</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">134</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">160</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">192</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Other (b)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">30</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">43</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">55</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">60</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">49</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Total APS</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">543</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">501</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">724</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,073</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1,172</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Other</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">8</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">551</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">505</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">728</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">1,073</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">1,172</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV style="margin-top: 3pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR> <TD width="3%"></TD> <TD width="1%"></TD> <TD width="96%"></TD> </TR> <TR valign="top"> <TD nowrap align="left">(a)</TD> <TD>&nbsp;</TD> <TD>Estimated 2010 capital expenditures are lower than the estimate in the 2009 Form 10-K, primarily due to the timing of renewable expenditures.</TD> </TR> <TR style="font-size: 3pt"><TD>&nbsp;</TD></TR> <TR valign="top"> <TD nowrap align="left">(b)</TD> <TD>&nbsp;</TD> <TD>Primarily information systems and facilities projects.</TD> </TR> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Generation capital expenditures are comprised of various improvements to APS&#146; existing fossil and nuclear plants. Examples of the types of projects included in this category are additions, upgrades and capital replacements of various power plant equipment, such as turbines, boilers and environmental equipment. We are also monitoring the status of certain environmental matters, which, depending on their final outcome, could require modification to our environmental expenditures. (See &#147;Environmental Matters &#151; Regional Haze Rules&#148; and &#147;Environmental Matters &#151; Coal Combustion Waste&#148; in Part&nbsp;II, Item&nbsp;5 below and &#147;Environmental Matters &#151; Mercury and Other Hazardous Air Pollutants&#148; in Part&nbsp;II, Item&nbsp;5 of the Pinnacle West/APS Quarterly Report on Form 10-Q for the quarter ended June&nbsp;30, 2010 (&#147;2<SUP style="FONT-size: 85%; vertical-align: text-top">nd</SUP> Quarter 10-Q&#148;)). </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Distribution and transmission capital expenditures are comprised of infrastructure additions and upgrades, capital replacements, new customer construction, related information systems and facility costs. Examples of the types of projects included in the forecast include power lines, substations, line extensions to new residential and commercial developments and upgrades to customer information systems. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Capital expenditures will be funded with internally generated cash and external financings, which may include issuances of long-term debt and Pinnacle West common stock. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>Pinnacle West (Parent Company)</I></B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our primary cash needs are for dividends to our shareholders and principal and interest payments on our short-term and long-term debt. The level of our common stock dividends and future dividend growth will be dependent on a number of factors including, but not limited to, payout ratio trends, free cash flow and financial market conditions. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->66<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On October&nbsp;20, 2010, the Pinnacle West Board of Directors declared a quarterly dividend of $0.525 per share of common stock, payable on December&nbsp;1, 2010, to shareholders of record on November 1, 2010. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">An existing ACC order requires APS to maintain a common equity ratio of at least 40%. As defined in the ACC order, the common equity ratio is total shareholder equity divided by the sum of total shareholder equity and long-term debt, including current maturities of long-term debt. At September&nbsp;30, 2010, APS&#146; common equity ratio, as defined, was 53%. Its total common equity was approximately $3.8&nbsp;billion, and total capitalization was approximately $7.2&nbsp;billion. APS would be prohibited from paying dividends if the payment would reduce its total shareholder equity below approximately $2.9&nbsp;billion, assuming APS&#146; total capitalization remains the same. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Pinnacle West and APS maintain committed revolving credit facilities in order to enhance liquidity and provide credit support for their commercial paper programs. During the first quarter of 2010, Pinnacle West and APS refinanced existing credit facilities that would have otherwise matured in December&nbsp;2010. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On February&nbsp;12, 2010, Pinnacle West refinanced its $283&nbsp;million revolving credit facility that would have matured in December&nbsp;2010, and decreased the size of the facility to $200&nbsp;million. The new facility matures in February&nbsp;2013. Pinnacle West has the option to increase the amount of the facility up to a maximum of $300&nbsp;million upon the satisfaction of certain conditions and with the consent of the lenders. Pinnacle West will use the facility for general corporate purposes, commercial paper support and for the issuance of letters of credit. Interest rates are based on Pinnacle West&#146;s senior unsecured debt credit ratings. As a result of the downsized credit facility, the Company also reduced the size of its commercial paper program to $200&nbsp;million from $250&nbsp;million. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">At September&nbsp;30, 2010, the $200&nbsp;million credit facility was available to support the issuance of up to $200&nbsp;million in commercial paper or for bank borrowings, including issuances of letters of credit up to $100&nbsp;million. At September&nbsp;30, 2010, Pinnacle West had no outstanding borrowings under its revolving credit facility, no commercial paper borrowings and no outstanding letters of credit. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In April&nbsp;2010, Pinnacle West issued 6,900,000 shares of common stock at an offering price of $38.00 per share, resulting in net proceeds of approximately $253&nbsp;million. Pinnacle West contributed all of the net proceeds from this offering into APS in the form of equity infusions. APS has used these contributions to repay short-term indebtedness, to finance capital expenditures and for other general corporate purposes. Pinnacle West intends to issue equity to provide most of the funds for the equity infusions into APS required by the retail rate case settlement. Such equity issuances may occur at any time in the period through 2014, in Pinnacle West&#146;s discretion. See Note 3. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In June&nbsp;2010, Pinnacle West received approximately $100&nbsp;million related to the sale of APSES&#146; district cooling business. The net proceeds were used to repay short-term indebtedness. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Pinnacle West expects to receive approximately $132&nbsp;million of cash tax benefits related to SunCor&#146;s strategic asset sales (see Note 16), which will not be fully realized until all of the asset sales are completed. Approximately $7&nbsp;million of these benefits were recorded in the nine months ended September&nbsp;30, 2010 as reductions to income tax expense related to the current impairment charges. The additional $125&nbsp;million of tax benefits were recorded as reductions to income tax expense related to SunCor impairment charges recorded on or before December&nbsp;31, 2009. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->67<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The $88&nbsp;million income tax receivables on the Condensed Consolidated Balance Sheets represent the anticipated refunds related to an APS tax accounting method change approved by the IRS in the third quarter of 2009 and the current year tax benefits related to the SunCor strategic asset sales that closed in 2010. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Pinnacle West sponsors a qualified defined benefit and account balance pension plan and a non-qualified supplemental excess benefit retirement plan for the employees of Pinnacle West and our subsidiaries. IRS regulations require us to contribute a minimum amount to the qualified plan. We contribute at least the minimum amount required under IRS regulations, but no more than the maximum tax-deductible amount. The minimum required funding takes into consideration the value of plan assets and our pension obligation. The assets in the plan are comprised of fixed-income, equity and short-term investments. Future year contribution amounts are dependent on plan asset performance and plan actuarial assumptions. We made no contribution to our pension plan in 2009. We currently estimate that our annual pension contributions could average around $100&nbsp;million for several years, assuming the discount rate remains at approximately current levels. During the first quarter of 2010, we made a voluntary contribution of approximately $100&nbsp;million to our pension plan. The contribution to our other postretirement benefit plans in 2010 is estimated to be approximately $15&nbsp;million. APS and other subsidiaries fund their share of the contributions. APS&#146; share is approximately 98% of both plans. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>APS</I></B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">APS&#146; capital requirements consist primarily of capital expenditures and maturities of long-term debt. APS funds its capital requirements with cash from operations and, to the extent necessary, equity infusions from Pinnacle West and external financings. See &#147;Pinnacle West (Parent Company)&#148; above for a discussion of the common equity ratio that APS must maintain in order to pay dividends to Pinnacle West. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On February&nbsp;12, 2010, APS refinanced its $377&nbsp;million credit facility that would have matured in December&nbsp;2010, and increased the size of the facility to $500&nbsp;million. The new credit facility terminates in February&nbsp;2013. APS has the option to increase the amount of the facility up to a maximum of $700&nbsp;million upon the satisfaction of certain conditions and with the consent of the lenders. APS will use the facility for general corporate purposes, commercial paper support and for the issuance of letters of credit. Interest rates are based on APS&#146; senior unsecured debt credit ratings. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">At September&nbsp;30, 2010, APS had two credit facilities totaling $989&nbsp;million, including the $500 million credit facility described above and a $489&nbsp;million facility that terminates in September 2011. These facilities are available either to support the issuance of up to $250&nbsp;million in commercial paper or for bank borrowings, including issuances of letters of credit up to $739 million. At September&nbsp;30, 2010, APS had no borrowings outstanding under any of its credit facilities and no outstanding commercial paper. A $20&nbsp;million letter of credit was issued under APS&#146; $489&nbsp;million credit facility in the second quarter of 2010. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On July&nbsp;13, 2010, APS changed the interest rate mode for the approximately $33&nbsp;million of Coconino County, Arizona Pollution Control Corporation Pollution Control Revenue Bonds (Arizona Public Service Company Navajo Project) 1994 Series&nbsp;A, due 2029. The rate period for the bonds changed from a daily rate mode, supported by a letter of credit, to a three-year term rate mode that will bear interest at a rate of 3.625% per annum for three years. The letter of credit was terminated in connection with this change, and there is no bank or other third-party credit support for the bonds in the term rate mode. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->68<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On August&nbsp;10, 2010, APS changed the letter of credit supporting the approximately $17&nbsp;million of Coconino County, Arizona Pollution Control Corporation Pollution Control Revenue Bonds (Arizona Public Service Company Project) Series&nbsp;1998, due 2033. The bonds were in a daily rate mode supported by a letter of credit and remain in a daily rate mode, supported by a new three-year letter of credit expiring in August&nbsp;2013. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On October&nbsp;12, 2010, APS changed the interest rate mode for the approximately $147&nbsp;million of City of Farmington, New Mexico Pollution Control Revenue Refunding Bonds (Arizona Public Service Company Four Corners Project) 1994 Series&nbsp;A and 1994 Series&nbsp;B, due 2024 and City of Farmington, New Mexico Pollution Control Revenue Bonds (Arizona Public Service Company Four Corners Project) 1994 Series&nbsp;C, due 2024. The rate period for the 1994 Series&nbsp;A bonds and the 1994 Series&nbsp;B bonds changed from a daily rate mode, supported by letters of credit, to a term rate mode to maturity with an optional redemption after year ten that will bear interest at a rate of 4.70% per annum until maturity in 2024 unless the optional redemption is exercised by APS. The rate period for the 1994 Series&nbsp;C bonds changed from a daily rate mode, supported by a letter of credit, to a three-year term rate mode that will bear interest at a rate of 2.875% per annum until October 2013. The letters of credit supporting each of these three series of bonds were terminated in connection with these changes, and there is no bank or other third-party credit support for any of these bonds. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On January&nbsp;1, 2010, due to the adoption of amended accounting guidance relating to VIEs, APS began consolidating the Palo Verde Lessor Trusts (see Note 7) and, as a result of consolidation of these VIEs, APS has reported the Lessor Trusts&#146; long-term debt on its Condensed Consolidated Balance Sheets. Interest rates on these debt instruments are 8% and are fixed for the remaining life of the debt. As of September&nbsp;30, 2010 approximately $30&nbsp;million was classified as current maturities of long-term debt and $113&nbsp;million was classified as long-term debt relating to these VIEs. These debt instruments mature on December&nbsp;30, 2015 and have sinking fund features that are serviced by the lease payments. See Note 7 for additional discussion of the VIEs. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><I>Other Financing Matters &#151; </I>See Note 3 for information regarding the PSA approved by the ACC. Although APS defers actual retail fuel and purchased power costs on a current basis, APS&#146; recovery of the deferrals from its ratepayers is subject to annual and, if necessary, periodic PSA adjustments. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">See Note 3 for information regarding the retail rate case settlement, which includes ACC authorization and requires equity infusions into APS of at least $700&nbsp;million by December&nbsp;31, 2014. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">See Note 8 for information related to the change in our margin accounts. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>Other Subsidiaries</I></B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><I>SunCor </I>&#151; In July&nbsp;2010, SunCor sold land parcels, commercial assets and a master planned home-building community for approximately $70&nbsp;million, which approximated the carrying value of these assets, resulting in a net gain of zero. In connection with this sale, SunCor negotiated a restructuring of certain of its credit facilities, including its principal loan facility. The debt restructuring resulted in an after-tax gain of approximately $9&nbsp;million, which was recognized in the third quarter of 2010. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">At September&nbsp;30, 2010, SunCor had approximately $22&nbsp;million of assets on its balance sheet classified as assets held for sale. These assets consist of $18&nbsp;million of consolidated VIEs (see Note 7), master planned home-building communities and golf courses. Because it is expected that SunCor will dispose of these assets within the next 12&nbsp;months, they are classified as assets held for sale on the balance sheet. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->69<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">At September&nbsp;30, 2010, SunCor had $6&nbsp;million debt outstanding, a portion of which is in default. Neither Pinnacle West nor any of its other subsidiaries has guaranteed any SunCor indebtedness. A SunCor debt default would not result in a cross-default of any of the debt of Pinnacle West or any of its other subsidiaries. While there can be no assurances as to the ultimate outcome of this matter, Pinnacle West does not believe that SunCor&#146;s inability to repay remaining debt outstanding would have a material adverse impact on Pinnacle West&#146;s cash flows or liquidity. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">As of September&nbsp;30, 2010, SunCor could not transfer any cash dividends to Pinnacle West. This restriction does not affect Pinnacle West&#146;s ability to meet its ongoing capital requirements. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><I>El Dorado </I>&#151; El Dorado expects minimal capital requirements over the next three years and intends to focus on prudently realizing the value of its existing investments. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><I>APSES </I>&#151; APSES expects minimal capital expenditures over the next three years. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>Debt Provisions</I></B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Pinnacle West&#146;s and APS&#146; debt covenants related to their respective bank financing arrangements include maximum debt to capitalization ratios. Pinnacle West and APS comply with these covenants and each anticipates it will continue to meet these and other significant covenant requirements. For both Pinnacle West and APS, these covenants require that the ratio of consolidated debt to total consolidated capitalization not exceed 65%. At September&nbsp;30, 2010, the ratio was approximately 49% for Pinnacle West and 46% for APS. Failure to comply with such covenant levels would result in an event of default which, generally speaking, would require the immediate repayment of the debt subject to the covenants and could cross-default other debt. See further discussion of &#147;cross-default&#148; provisions below. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Neither Pinnacle West&#146;s nor APS&#146; financing agreements contain &#147;rating triggers&#148; that would result in an acceleration of the required interest and principal payments in the event of a rating downgrade. However, our bank financial agreements contain a pricing grid in which the interest costs we pay for borrowings thereafter are determined by our current credit ratings. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">All of Pinnacle West&#146;s loan agreements contain &#147;cross-default&#148; provisions that would result in defaults and the potential acceleration of payment under these loan agreements if Pinnacle West or APS were to default under certain other material agreements. All of APS&#146; bank agreements contain cross-default provisions that would result in defaults and the potential acceleration of payment under these bank agreements if APS were to default under certain other material agreements. Pinnacle West and APS do not have a material adverse change restriction for credit facility borrowings. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">See Note 2 for further discussions of liquidity matters. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>Credit Ratings</I></B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The ratings of securities of Pinnacle West and APS as of October 25, 2010 are shown below. The ratings reflect the respective views of the rating agencies, from which an explanation of the significance of their ratings may be obtained. There is no assurance that these ratings will continue for any given period of time. The ratings may be revised or withdrawn entirely by the rating agencies if, in their respective judgments, circumstances so warrant. Any downward revision or withdrawal may adversely affect the market price of Pinnacle West&#146;s or APS&#146; securities and serve to increase the cost of and limit access to capital. It may also require substantial additional cash or other collateral requirements related to certain derivative instruments, insurance policies, natural gas transportation, fuel supply, and other energy-related contracts. At this time, we believe we have sufficient liquidity to cover a downward revision to our credit ratings. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->70<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="58%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="11%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="11%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="11%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" style="border-bottom: 1px solid #000000">Moody&#146;s</TD> <TD>&nbsp;</TD> <TD nowrap align="center" style="border-bottom: 1px solid #000000">Standard &#038; Poor&#146;s</TD> <TD>&nbsp;</TD> <TD nowrap align="center" style="border-bottom: 1px solid #000000">Fitch</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Pinnacle West</B></DIV></TD> <TD>&nbsp;</TD> <TD align="center" valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top">&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Senior unsecured (a)</DIV></TD> <TD>&nbsp;</TD> <TD align="center" valign="top">Baa3 (P)</TD> <TD>&nbsp;</TD> <TD align="center" valign="top">BB&#043; (prelim)</TD> <TD>&nbsp;</TD> <TD align="center" valign="top">N/A</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Commercial paper</DIV></TD> <TD>&nbsp;</TD> <TD align="center" valign="top">P-3</TD> <TD>&nbsp;</TD> <TD align="center" valign="top">A-3</TD> <TD>&nbsp;</TD> <TD align="center" valign="top">F3</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Outlook</DIV></TD> <TD>&nbsp;</TD> <TD align="center" valign="top">Stable</TD> <TD>&nbsp;</TD> <TD align="center" valign="top">Positive</TD> <TD>&nbsp;</TD> <TD align="center" valign="top">Stable</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD align="center" valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top">&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px"><B>APS</B></DIV></TD> <TD>&nbsp;</TD> <TD align="center" valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top">&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Senior unsecured</DIV></TD> <TD>&nbsp;</TD> <TD align="center" valign="top">Baa2</TD> <TD>&nbsp;</TD> <TD align="center" valign="top">BBB-</TD> <TD>&nbsp;</TD> <TD align="center" valign="top">BBB</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Secured lease obligation bonds</DIV></TD> <TD>&nbsp;</TD> <TD align="center" valign="top">Baa2</TD> <TD>&nbsp;</TD> <TD align="center" valign="top">BBB-</TD> <TD>&nbsp;</TD> <TD align="center" valign="top">BBB</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:30px; text-indent:-15px">Commercial paper</DIV></TD> <TD>&nbsp;</TD> <TD align="center" valign="top">P-2</TD> <TD>&nbsp;</TD> <TD align="center" valign="top">A-3</TD> <TD>&nbsp;</TD> <TD align="center" valign="top">F3</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:30px; text-indent:-15px">Outlook</DIV></TD> <TD>&nbsp;</TD> <TD align="center" valign="top">Stable</TD> <TD>&nbsp;</TD> <TD align="center" valign="top">Positive</TD> <TD>&nbsp;</TD> <TD align="center" valign="top">Stable</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV style="margin-top: 3pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR> <TD width="3%"></TD> <TD width="1%"></TD> <TD width="96%"></TD> </TR> <TR valign="top"> <TD nowrap align="left">(a)</TD> <TD>&nbsp;</TD> <TD>Pinnacle West has a shelf registration under the Securities and Exchange Commission (&#147;SEC&#148;) Rule&nbsp;415. Pinnacle West currently has no outstanding, rated senior unsecured securities. However, Moody&#146;s assigned a provisional (P)&nbsp;rating and Standard &#038; Poor&#146;s assigned a preliminary (prelim)&nbsp;rating to the senior unsecured securities that can be issued under such shelf registration.</TD> </TR> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>Off-Balance Sheet Arrangements</I></B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On January&nbsp;1, 2010 we adopted amended accounting guidance relating to VIEs and, as a result, we have consolidated certain entities which were previously not consolidated. The consolidation of these entities has impacted our consolidated financial statement results. See Note 7 for a discussion of these impacts. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>Guarantees and Letters of Credit</I></B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We have issued parental guarantees and obtained surety bonds on behalf of our subsidiaries including credit support instruments enabling APSES to offer energy-related products and surety bonds at APS, principally related to self-insured workers&#146; compensation. Non-performance or non-payment under the underlying contract by our subsidiaries would result in a payment liability on our part under the guarantee or surety bond. No liability is currently recorded on the Condensed Consolidated Balance Sheets related to Pinnacle West&#146;s current outstanding guarantees and surety bonds on behalf of our subsidiaries. At September&nbsp;30, 2010, we had no outstanding claims for payment under any of these guarantees. Our guarantees and surety bonds have no recourse or collateral provisions to allow us to recover amounts paid under the guarantees or surety bonds from our subsidiaries. We generally agree to indemnification provisions related to liabilities arising from or related to certain of our agreements, with limited exceptions depending on the particular agreement. See Note 12 for additional information regarding guarantees and letters of credit. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->71<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 0%"><B>Contractual Obligations</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our future contractual obligations for fuel and purchased power contracts and purchase obligations have increased from approximately $8.8&nbsp;billion at December&nbsp;31, 2009 to $10.3&nbsp;billion at September&nbsp;30, 2010 as follows (dollars in billions): </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --> <TR valign="bottom"> <TD width="1%">&nbsp;</TD> <TD width="15%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="16%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="16%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="16%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="16%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD nowrap colspan="2" align="center" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2011-2012</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2013-2014</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Thereafter</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Total</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD align="left">$</TD> <TD align="right"><DIV style="margin-left:15px; text-indent:-15px">0.7</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">1.0</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">1.0</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">7.6</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">10.3</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">These amounts have increased since the 2009 Form 10-K primarily due to increased commitments for fuel and purchased power and contracts associated with meeting our renewable energy requirements. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">See Note 2 for a list of payments due on total long-term debt and capitalized lease requirements. </DIV> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>CRITICAL ACCOUNTING POLICIES</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In preparing the financial statements in accordance with GAAP, management must often make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the date of the financial statements and during the reporting period. Some of those judgments can be subjective and complex, and actual results could differ from those estimates. There have been no changes to our critical accounting policies since our 2009 Form 10-K. See &#147;Critical Accounting Policies&#148; in Item&nbsp;7 of the 2009 Form 10-K for further details about our critical accounting policies. </DIV> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>OTHER ACCOUNTING MATTERS</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On January&nbsp;1, 2010 we adopted amended accounting guidance relating to VIEs, and as a result we have consolidated certain entities which were previously not consolidated. The consolidation of these entities has impacted our consolidated financial statement results. See Notes 1 and 7 for a discussion of these impacts. </DIV> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>MARKET AND CREDIT RISKS</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Market Risks</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Our operations include managing market risks related to changes in interest rates, commodity prices and investments held by our nuclear decommissioning trust fund. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B>Interest Rate and Equity Risk</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We have exposure to changing interest rates. Changing interest rates will affect interest paid on variable-rate debt and the market value of fixed income securities held by our nuclear decommissioning trust fund (see Note 15). The nuclear decommissioning trust fund also has risks associated with the changing market value of its investments. Nuclear decommissioning costs are recovered in regulated electricity prices. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B>Commodity Price Risk</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We are exposed to the impact of market fluctuations in the commodity price and transportation costs of electricity and natural gas. Our risk management committee, consisting of officers and key management personnel, oversees company-wide energy risk management activities to ensure compliance with our stated energy risk management policies. We manage risks associated with these market fluctuations by utilizing various commodity instruments that qualify as derivatives, including exchange-traded futures and options and over-the-counter forwards, options and swaps. As part of our risk management program, we use such instruments to hedge purchases and sales of electricity and fuels. The changes in market value of such contracts have a high correlation to price changes in the hedged commodities. </DIV> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->72<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table shows the net pretax changes in mark-to-market of our derivative positions for the nine months ended September&nbsp;30, 2010 and 2009 (dollars in millions): </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --><TR valign="bottom"> <TD width="72%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Nine Months Ended</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Mark-to-market of net positions at beginning of period</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(169</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(282</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">Recognized in earnings:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff; padding-top: 1px"> <TD><DIV style="margin-left:30px; text-indent:-15px">Change in mark-to-market losses for future period deliveries</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(7</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(3</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD><DIV style="margin-left:30px; text-indent:-15px">Mark-to-market losses realized including ineffectiveness during the period</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">3</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">9</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff; padding-top: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">Decrease (increase)&nbsp;in regulatory asset</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(52</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">59</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">Recognized in other comprehensive income (OCI):</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff; padding-top: 1px"> <TD><DIV style="margin-left:30px; text-indent:-15px">Change in mark-to-market losses for future period deliveries (a)</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(168</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(128</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD><DIV style="margin-left:30px; text-indent:-15px">Mark-to-market losses realized during the period</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">102</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">155</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff; padding-top: 1px"> <TD><DIV style="margin-left:30px; text-indent:-15px">Change in valuation techniques</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Mark-to-market of net positions at end of period</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(291</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(190</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --></TABLE> </DIV> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR style="font-size: 6pt"> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="96">&nbsp;</TD> </TR> <TR valign="top"> <TD nowrap align="left">(a)</TD> <TD>&nbsp;</TD> <TD>The changes in mark-to-market recorded in OCI are due primarily to changes in forward natural gas prices.</TD> </TR> </TABLE> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The table below shows the fair value of maturities of our derivative contracts (dollars in millions and excluding margin and collateral) at September&nbsp;30, 2010 by maturities and by the type of valuation that is performed to calculate the fair values. See Note 1, &#147;Derivative Accounting&#148; and &#147;Fair Value Measurements,&#148; in Item&nbsp;8 of our 2009 Form 10-K and Note 15 for more discussion of our valuation methods. </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --><TR valign="bottom"> <TD width="23%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="6%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="6%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="6%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="6%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="6%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="6%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="6%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Total</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Years</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">fair</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD nowrap align="left" style="border-bottom: 1px solid #000000">Source of Fair Value</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2012</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2013</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2014</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">thereafter</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">value</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Prices actively quoted</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(1</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(1</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(2</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">Prices provided by other external sources</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(33</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(144</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(48</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(15</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(240</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff; padding-top: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">Prices based on models and other valuation methods</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(3</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(3</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(4</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(10</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(8</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(21</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(49</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total by maturity</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(37</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(148</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(52</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(25</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(8</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(21</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(291</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --></TABLE> </DIV> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->73<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The table below shows the impact that hypothetical price movements of 10% would have on the market value of our risk management assets and liabilities included on Pinnacle West&#146;s Condensed Consolidated Balance Sheets at September&nbsp;30, 2010 and December&nbsp;31, 2009 (dollars in millions): </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --><TR valign="bottom"> <TD width="44%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">September 30, 2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">December 31, 2009</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Gain (Loss)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">Gain (Loss)</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Price Up 10%</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Price Down 10%</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Price Up 10%</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Price Down 10%</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Mark-to-market changes reported in:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD><DIV style="margin-left:30px; text-indent:-15px">Earnings</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff; padding-top: 1px"> <TD><DIV style="margin-left:45px; text-indent:-15px">Electricity</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">1</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(1</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">1</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(1</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD><DIV style="margin-left:45px; text-indent:-15px">Natural gas</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(1</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(1</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff; padding-top: 1px"> <TD><DIV style="margin-left:30px; text-indent:-15px">Regulatory asset, liability or OCI (a)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD><DIV style="margin-left:45px; text-indent:-15px">Electricity</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">15</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(15</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">21</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(21</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff; padding-top: 1px"> <TD><DIV style="margin-left:45px; text-indent:-15px">Natural gas</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">38</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(38</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">59</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(59</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">55</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(55</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">82</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(82</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --></TABLE> </DIV> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR style="font-size: 6pt"> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="96">&nbsp;</TD> </TR> <TR valign="top"> <TD nowrap align="left">(a)</TD> <TD>&nbsp;</TD> <TD>These contracts are hedges of our forecasted purchases of natural gas and electricity. The impact of these hypothetical price movements would substantially offset the impact that these same price movements would have on the physical exposures being hedged. To the extent the amounts are eligible for inclusion in the PSA, the amounts are recorded as either a regulatory asset or liability.</TD> </TR> </TABLE> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Credit Risk</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">We are exposed to losses in the event of non-performance or non-payment by counterparties. See Note 15 &#151; &#147;Fair Value Measurements&#148; for a discussion of our credit valuation adjustment policy. See Note 8 for a further discussion of credit risk. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->74<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>ARIZONA PUBLIC SERVICE COMPANY &#151; RESULTS OF OPERATIONS</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Operating Results &#151; Three-month period ended September&nbsp;30, 2010 compared with three-month period ended September&nbsp;30, 2009</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">APS&#146; consolidated net income attributable to common shareholder for the three months ended September&nbsp;30, 2010 was $227&nbsp;million, compared with net income of $197&nbsp;million for the comparable prior-year period. As discussed in greater detail below, net income increased approximately $30&nbsp;million from the prior-year period primarily due to increased revenues related to APS&#146; retail rate increases, partially offset by increased operations and maintenance expenses. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table presents net income attributable to common shareholder compared with the prior-year period: </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --><TR valign="bottom"> <TD width="58%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Three Months Ended</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Net Change</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="10">(dollars in millions)</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Operating revenues less fuel and purchased power expenses</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">762</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">702</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">60</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">Operations and maintenance</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(217</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(193</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(24</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff; padding-top: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation and amortization</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(104</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(103</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(1</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">Taxes other than income taxes</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(37</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(34</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(3</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff; padding-top: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">Other income (expenses), net</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(1</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(2</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">Interest charges, net of allowance for funds used during construction</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(45</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(53</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">8</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff; padding-top: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(126</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(118</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(8</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">Noncontrolling interests (Note 7)</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(5</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(5</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Net Income Attributable to Common Shareholder</B></DIV></TD> <TD>&nbsp;</TD> <TD align="left"><B>$</B></TD> <TD align="right"><B>227</B></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left"><B>$</B></TD> <TD align="right"><B>197</B></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left"><B>$</B></TD> <TD align="right"><B>30</B></TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --></TABLE> </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->75<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%"><B>Operating revenues less fuel and purchased power expenses</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Electric operating revenues less fuel and purchased power expenses were $60&nbsp;million higher for the three months ended September&nbsp;30, 2010 compared with the prior-year period. The following table describes the major components of this change: </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --><TR valign="bottom"> <TD width="58%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Increase (Decrease)</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Fuel and</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">purchased</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Operating</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">power</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">revenues</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">expenses</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Net change</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="10">(dollars in millions)</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR style="font-size: 10pt"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Retail regulatory settlement effective January&nbsp;1, 2010:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD><DIV style="margin-left:30px; text-indent:-15px">Retail base rate increases, net of deferrals</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">98</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">43</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">55</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff; padding-top: 1px"> <TD><DIV style="margin-left:30px; text-indent:-15px">Line extension revenues (Note 3)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">6</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">6</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">Transmission rate decreases</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(1</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(1</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff; padding-top: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">Higher demand-side management and renewable energy surcharges (substantially offset in operations and maintenance expense)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">11</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">11</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">Effects of weather on retail sales</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">6</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff; padding-top: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">Lower retail revenues related to recovery of PSA deferrals, substantially offset by lower amortization of fuel and purchased power expense</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(90</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(92</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">Higher fuel and purchased power costs, including the effects of higher off-system sales, net of related PSA deferrals</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">22</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">24</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(2</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff; padding-top: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">Lower retail sales primarily due to lower usage per customer, including the effects of the Company&#146;s energy efficiency programs, but excluding the effects of weather</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(15</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(5</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(10</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">Miscellaneous items, net</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(4</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">1</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(5</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">33</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(27</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">60</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --></TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B>Operations and maintenance </B>Operations and maintenance expenses increased $24&nbsp;million for the three months ended September&nbsp;30, 2010 compared with the prior-year period primarily because of: </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="4%" style="background: transparent">&nbsp;</TD> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>An increase of $8&nbsp;million related to demand-side management and renewable energy programs, which are primarily offset in operating revenues;</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="4%" style="background: transparent">&nbsp;</TD> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>An increase of $6&nbsp;million related to employee benefit costs; and</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="4%" style="background: transparent">&nbsp;</TD> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>An increase of $4&nbsp;million in generation costs, including the acceleration of fossil-plant planned maintenance.</TD> </TR> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B>Interest charges, net of allowance for funds used during construction </B>Interest charges, net of allowance for funds used during construction, decreased $8&nbsp;million for the three months ended September&nbsp;30, 2010 compared with the prior-year period primarily because of higher rates in the current year for the allowance for equity and borrowed funds used during construction. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B>Income taxes </B>Income taxes were $8&nbsp;million higher for the three months ended September&nbsp;30, 2010 compared with the prior-year period primarily because of higher pretax income in the current-year period. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->76<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Operating Results &#151; Nine-month period ended September&nbsp;30, 2010 compared with nine-month period ended September&nbsp;30, 2009</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">APS&#146; net income attributable to common shareholder for the nine months ended September&nbsp;30, 2010 was $328&nbsp;million, compared with $260&nbsp;million for the comparable prior-year period. Net income increased approximately $68&nbsp;million from the prior-year period due to increased revenues related to APS&#146; retail rate increases and other factors, partially offset by milder weather in the second quarter of 2010. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table presents net income attributable to common shareholder compared with the prior-year period: </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --><TR valign="bottom"> <TD width="58%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Nine Months Ended</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Net Change</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="10">(dollars in millions)</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Operating revenues less fuel and purchased power expenses</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">1,706</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">1,578</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">128</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">Operations and maintenance</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(632</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(596</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(36</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff; padding-top: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation and amortization</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(308</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(304</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(4</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">Taxes other than income taxes</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(100</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(100</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">&#151;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff; padding-top: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">Other income (expenses), net</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(7</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(3</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(4</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">Interest charges, net of allowance for funds used during construction</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(143</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(147</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">4</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff; padding-top: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(173</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(154</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(19</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">Noncontrolling interests (Note 7)</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(15</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(14</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(1</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Net Income Attributable to Common Shareholder</B></DIV></TD> <TD>&nbsp;</TD> <TD align="left"><B>$</B></TD> <TD align="right"><B>328</B></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left"><B>$</B></TD> <TD align="right"><B>260</B></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left"><B>$</B></TD> <TD align="right"><B>68</B></TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --></TABLE> </DIV> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->77<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B>Operating revenues less fuel and purchased power expenses</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Electric operating revenues less fuel and purchased power expenses were $128&nbsp;million higher for the nine months ended September&nbsp;30, 2010 compared with the prior-year period. The following table describes the major components of this change: </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --><TR valign="bottom"> <TD width="58%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Increase (Decrease)</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Fuel and</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">purchased</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">Operating</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">power</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">revenues</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">expenses</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Net change</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="10">(dollars in millions)</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom"><!-- Blank Space --> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Retail regulatory settlement effective January&nbsp;1, 2010:</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD><DIV style="margin-left:30px; text-indent:-15px">Retail base rate increases, net of deferrals</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">217</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">100</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">117</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff; padding-top: 1px"> <TD><DIV style="margin-left:30px; text-indent:-15px">Line extension revenues (Note 3)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">14</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">14</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">Transmission rate increases</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">8</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">8</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff; padding-top: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">Higher demand-side management and renewable energy surcharges (substantially offset in operations and maintenance expense)</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">26</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">26</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">Lower retail revenues related to recovery of PSA deferrals, substantially offset by lower amortization of fuel and purchased power expense</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(211</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(216</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">5</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff; padding-top: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">Higher fuel and purchased power costs including the effects of higher off-system sales, net of related PSA deferrals</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">24</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">29</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(5</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">Lower retail sales primarily due to lower usage per customer, including the effects of the Company&#146;s energy efficiency programs, but excluding the effects of weather</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(16</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(7</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(9</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff; padding-top: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">Effects of weather on retail sales, primarily due to milder weather in the second quarter 2010</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(27</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(8</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(19</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">Miscellaneous items, net</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(7</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">2</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(9</TD> <TD nowrap>)</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">28</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">$</TD> <TD align="right">(100</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">128</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 1px"> <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --></TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B>Operations and maintenance </B>Operations and maintenance expenses increased $36&nbsp;million for the nine months ended September&nbsp;30, 2010 compared with the prior-year period primarily because of: </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="4%" style="background: transparent">&nbsp;</TD> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>An increase of $20&nbsp;million related to demand-side management and renewable energy programs, which are primarily offset in operating revenues;</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="4%" style="background: transparent">&nbsp;</TD> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>An increase of $7&nbsp;million related to employee benefit costs; and</TD> </TR> </TABLE> </DIV> <DIV style="margin-top: 10pt"> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <TD width="4%" style="background: transparent">&nbsp;</TD> <TD width="3%" nowrap align="left"><B>&#149;</B></TD> <TD width="1%">&nbsp;</TD> <TD>An increase of $5&nbsp;million related to customer service and other costs.</TD> </TR> </TABLE> </DIV> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->78<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV style="margin-top: 10pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> </TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B>Income taxes </B>Income taxes were $19&nbsp;million higher for the nine months ended September&nbsp;30, 2010 compared with the prior-year period primarily because of higher pretax income in the current-year period, partially offset by $15&nbsp;million related to a reduction in APS&#146; 2010 effective income tax rate. See Note 6. </DIV> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>ARIZONA PUBLIC SERVICE COMPANY &#151; LIQUIDITY AND CAPITAL RESOURCES</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Cash Flows</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table presents net cash provided by (used for) operating, investing and financing activities for the nine months ended September&nbsp;30, 2010 and 2009 (dollars in millions): </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --><TR valign="bottom"> <TD width="72%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="9%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6">Nine Months Ended</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">September 30,</TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2009</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash flow provided by operating activities</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">506</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">713</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash flow used for investing activities</DIV></TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(548</TD> <TD nowrap>)</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(560</TD> <TD nowrap>)</TD> </TR> <TR valign="bottom" style="background: #cceeff; padding-top: 1px"> <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash flow provided by (used for) financing activities</DIV></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="right">84</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="left">&nbsp;</TD> <TD align="right">(139</TD> <TD nowrap>)</TD> </TR> <!-- End Table Body --></TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The decrease of approximately $207&nbsp;million in net cash provided by operating activities is primarily due to increased collateral and margin cash provided as a result of changes in commodity prices, the payment of income taxes in 2010, and a voluntary pension contribution in 2010 of approximately $100&nbsp;million. These were partially offset by other changes in working capital. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The decrease of approximately $12&nbsp;million in net cash used for investing activities is primarily due to higher contributions in aid of construction and other cash flows. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The decrease of approximately $223&nbsp;million in net cash used for financing activities is primarily due to the repayment of short-term borrowings in 2009 offset by lower net sources of equity and long-term debt financing including the proceeds of approximately $253&nbsp;million from the infusion of equity from Pinnacle West in 2010 and by APS&#146; issuance of $500&nbsp;million of unsecured senior notes in 2009. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Contractual Obligations</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">APS&#146; future contractual obligations for fuel and purchased power contracts and purchase obligations have increased from approximately $8.8&nbsp;billion at December&nbsp;31, 2009 to $10.3 billion at September&nbsp;30, 2010 as follows (dollars in billions): </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --><TR valign="bottom"> <TD width="1%">&nbsp;</TD> <TD width="15%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="16%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="16%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="16%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="16%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD nowrap colspan="2" align="center" style="border-bottom: 1px solid #000000">2010</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2011-2012</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2013-2014</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Thereafter</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Total</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="background: #cceeff"> <TD align="left">$</TD> <TD align="right"><DIV style="margin-left:15px; text-indent:-15px">0.7</DIV></TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">1.0</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">1.0</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">7.6</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left">$</TD> <TD align="right">10.3</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --></TABLE> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">These amounts have increased since the 2009 Form 10-K primarily due to increased commitments for fuel and purchased power and contracts associated with meeting our renewable energy requirements. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">See Note 2 for a list of payments due on total long-term debt and capitalized lease requirements. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->79<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="left"> <A name="107"></A> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Item&nbsp;3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">See &#147;Key Financial Drivers&#148; and &#147;Market and Credit Risks&#148; in Item&nbsp;2 above for a discussion of quantitative and qualitative disclosures about market risks. </DIV> <DIV align="left"> <A name="108"></A> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Item&nbsp;4. CONTROLS AND PROCEDURES</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%">(a)&nbsp;Disclosure Controls and Procedures </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The term &#147;disclosure controls and procedures&#148; means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the &#147;Exchange Act&#148;) (15 U.S.C. 78a <I>et seq</I>.), is recorded, processed, summarized and reported, within the time periods specified in the SEC&#146;s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to a company&#146;s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Pinnacle West&#146;s management, with the participation of Pinnacle West&#146;s Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of Pinnacle West&#146;s disclosure controls and procedures as of September&nbsp;30, 2010. Based on that evaluation, Pinnacle West&#146;s Chief Executive Officer and Chief Financial Officer have concluded that, as of that date, Pinnacle West&#146;s disclosure controls and procedures were effective. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">APS&#146; management, with the participation of APS&#146; Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of APS&#146; disclosure controls and procedures as of September&nbsp;30, 2010. Based on that evaluation, APS&#146; Chief Executive Officer and Chief Financial Officer have concluded that, as of that date, APS&#146; disclosure controls and procedures were effective. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%">(b)&nbsp;Changes in Internal Control Over Financial Reporting </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The term &#147;internal control over financial reporting&#148; (defined in SEC Rule&nbsp;13a-15(f)) refers to the process of a company that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">No change in Pinnacle West&#146;s or APS&#146; internal control over financial reporting occurred during the fiscal quarter ended September&nbsp;30, 2010 that materially affected, or is reasonably likely to materially affect, Pinnacle West&#146;s or APS&#146; internal control over financial reporting. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->80<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="left"> <A name="109"></A> </DIV> <DIV align="center" style="font-size: 10pt; margin-top: 10pt"><B>Part II &#151; OTHER INFORMATION</B> </DIV> <DIV align="left"> <A name="110"></A> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Item&nbsp;1. LEGAL PROCEEDINGS</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">See &#147;Environmental Matters&#148; in Item&nbsp;5 below, Part&nbsp;II, Item&nbsp;5 of the Pinnacle West/APS Quarterly Report on Form 10-Q for the quarter ended March&nbsp;31, 2010 and the 2<SUP style="font-size: 85%; vertical-align: text-top">nd</SUP> Quarter 10-Q, and &#147;Business of Arizona Public Service Company &#151; Environmental Matters&#148; in Item&nbsp;1 of the 2009 Form 10-K in regard to pending or threatened litigation or other disputes. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">See Note 10 with regard to a lawsuit brought by APS on behalf of itself and the other Palo Verde owners against the DOE, for information relating to FERC proceedings on California and Pacific Northwest energy market issues and for information regarding bankruptcy proceedings involving the landlord for our corporate headquarters building. </DIV> <DIV align="left"> <A name="111"></A> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Item&nbsp;1A. RISK FACTORS</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part&nbsp;I, Item&nbsp;1A. &#151; Risk Factors in the 2009 Form 10-K, which could materially affect the business, financial condition, cash flows or future results of Pinnacle West and APS. The risks described in the 2009 Form 10-K are not the only risks facing Pinnacle West and APS. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect the business, financial condition, cash flows and/or operating results of Pinnacle West and APS. </DIV> <DIV align="left"> <A name="112"></A> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Item&nbsp;5. OTHER INFORMATION</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Environmental Matters</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%"><B>Superfund</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%">See &#147;Superfund&#148; in Note 10 for a discussion of a Superfund site. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%"><B>EPA Environmental Regulation</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>Regional Haze Rules. </I></B>EPA Region 9 previously requested that APS, as the operating agent for Four Corners, and Salt River Project Agricultural Improvement and Power District (&#147;SRP&#148;), as the operating agent for the Navajo Generating Station (&#147;Navajo&#148;), perform a BART analysis for each of Four Corners and Navajo, respectively. See &#147;Business of Arizona Public Service Company &#151; Environmental Matters &#151; EPA Environmental Regulation &#151; Regional Haze Rules&#148; in Item&nbsp;1 of the 2009 Form 10-K for additional background on the BART analyses and the underlying process. APS and SRP each submitted an analysis to the EPA concluding that certain combustion control equipment constitutes BART for these plants. Based on the analyses and comments received through EPA&#146;s rulemaking process, the EPA will determine what it believes constitutes BART for each plant. The Four Corners and Navajo plant participants&#146; obligations to comply with the EPA&#146;s final BART determinations, coupled with the financial impact of future climate change legislation, other environmental regulations and other business considerations, could jeopardize the economic viability of these plants or the ability of individual participants to continue their participation in these plants. </DIV> <P align="center" style="font-size: 10pt; text-indent: 4%">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->81<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In order to coordinate with each plant&#146;s other scheduled activities, the plants are currently implementing portions of their recommended plans on a voluntary basis. APS&#146; share of the costs related to the implementation of these portions of the recommended plans are included in our environmental expenditure estimates (see &#147;Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations &#151; Capital Expenditures&#148; in Part&nbsp;I, Item&nbsp;2). </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On October&nbsp;6, 2010, the EPA issued its proposed BART determination for Four Corners, which is subject to a sixty day public comment period beginning on October 19<sup>th</sup>, the date it was published in the Federal Register. APS has requested a sixty day extension. Once the comment period has run, the EPA will then consider the comments submitted and issue a final rule. The rule, as proposed, would require the installation of post-combustion controls on each of Units 1-5 at Four Corners to reduce nitrogen oxides emissions. As previously disclosed, APS&#146; total costs for these controls could be up to approximately $422&nbsp;million for Four Corners. The EPA also indicated in the proposal that it may require the installation of electrostatic precipitators or baghouses on Units 1, 2 and 3 to reduce particulate matter emissions. APS estimates that its total costs for such particulate removal equipment is approximately $220 million, which may also be required by no later than 2014 under the anticipated mercury rules. (See &#147;Environmental Matters &#151; Mercury and Other Hazardous Air Pollutants&#148; in Part II, Item 5 of the 2<sup>nd</sup> Quarter 10-Q for additional information on these anticipated rules.) The EPA proposed a 10% stack opacity limitation for all five units and a 20% opacity limitation on certain fugitive dust emissions, although the proposed fugitive dust provision is unrelated to BART. APS is currently evaluating the impacts of the proposed rule and intends to submit comments to the EPA during the comment period. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The EPA has not yet issued a proposed rule for the Navajo plant. The participant owners of Four Corners and the Navajo plant will have five years after the EPA issues its final determinations for each plant, respectively, to achieve compliance with their BART requirements. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><B><I>Coal Combustion Waste. </I></B>On June&nbsp;21, 2010, the EPA released its proposed regulations governing the handling and disposal of coal combustion residuals (&#147;CCRs&#148;), such as fly ash and bottom ash. APS currently disposes of CCRs in ash ponds and dry storage areas at Cholla and Four Corners, and also sells a portion of its fly ash for beneficial reuse as a constituent in concrete production. The EPA proposes regulating CCRs as either non-hazardous waste or hazardous waste and is seeking comment on three different alternatives. The hazardous waste proposal would phase out the use of ash ponds for disposal of CCRs. The other two proposals regulate CCRs as non-hazardous waste and impose performance standards for ash disposal. One of these proposals would require retrofitting or closure of currently unlined ash ponds, while the other proposal would not require the installation of liners or pond closures. The EPA has not yet indicated a preference for any of the alternatives. </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">APS intends to file comments on the proposed rule during the public comment period, which was recently extended by the EPA to end on November&nbsp;19, 2010. We do not know when the EPA will issue a final rule, including required compliance dates. We cannot currently predict the outcome of the EPA&#146;s actions or whether such actions will have a material adverse impact on our financial position, results of operations or cash flows. </DIV> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->82<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="left"> <A name="113"></A> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt"><B>Item&nbsp;6. EXHIBITS</B> </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; margin-left: 4%">(a)&nbsp;Exhibits </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --><TR valign="bottom"> <TD width="2%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="2%">&nbsp;</TD> <TD width="4%">&nbsp;</TD> <TD width="13%">&nbsp;</TD> <TD width="4%">&nbsp;</TD> <TD width="76%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B><I>Exhibit No.</I></B></TD> <TD>&nbsp;</TD> <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B><I>Registrant(s)</I></B></TD> <TD>&nbsp;</TD> <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B><I>Description</I></B></TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom"><!-- Blank Space --> <TD nowrap align="right" valign="top">&nbsp;</TD> <TD align="right" valign="top">&nbsp;</TD> <TD valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD nowrap align="right" valign="top">&nbsp;</TD> <TD align="right" valign="top">12.1</TD> <TD nowrap valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Pinnacle West </DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">Ratio of Earnings to Fixed Charges</TD> </TR> <TR valign="bottom" style="padding-top: 1px"><!-- Blank Space --> <TD nowrap align="right" valign="top">&nbsp;</TD> <TD align="right" valign="top">&nbsp;</TD> <TD valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD nowrap align="right" valign="top">&nbsp;</TD> <TD align="right" valign="top">12.2</TD> <TD nowrap valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">APS </DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">Ratio of Earnings to Fixed Charges</TD> </TR> <TR valign="bottom" style="padding-top: 1px"><!-- Blank Space --> <TD nowrap align="right" valign="top">&nbsp;</TD> <TD align="right" valign="top">&nbsp;</TD> <TD valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD nowrap align="right" valign="top">&nbsp;</TD> <TD align="right" valign="top">12.3</TD> <TD nowrap valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Pinnacle West </DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements</TD> </TR> <TR valign="bottom" style="padding-top: 1px"><!-- Blank Space --> <TD nowrap align="right" valign="top">&nbsp;</TD> <TD align="right" valign="top">&nbsp;</TD> <TD valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD nowrap align="right" valign="top">&nbsp;</TD> <TD align="right" valign="top">31.1</TD> <TD nowrap valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Pinnacle West </DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">Certificate of Donald E. Brandt, Chief Executive Officer, pursuant to Rule&nbsp;13a-14(a) and Rule&nbsp;15d-14(a) of the Securities Exchange Act, as amended</TD> </TR> <TR valign="bottom" style="padding-top: 1px"><!-- Blank Space --> <TD nowrap align="right" valign="top">&nbsp;</TD> <TD align="right" valign="top">&nbsp;</TD> <TD valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD nowrap align="right" valign="top">&nbsp;</TD> <TD align="right" valign="top">31.2</TD> <TD nowrap valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Pinnacle West </DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">Certificate of James R. Hatfield, Senior Vice President and Chief Financial Officer, pursuant to Rule&nbsp;13a-14(a) and Rule&nbsp;15d-14(a) of the Securities Exchange Act, as amended</TD> </TR> <TR valign="bottom" style="padding-top: 1px"><!-- Blank Space --> <TD nowrap align="right" valign="top">&nbsp;</TD> <TD align="right" valign="top">&nbsp;</TD> <TD valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD nowrap align="right" valign="top">&nbsp;</TD> <TD align="right" valign="top">31.3</TD> <TD nowrap valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">APS </DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">Certificate of Donald E. Brandt, Chief Executive Officer, pursuant to Rule&nbsp;13a-14(a) and Rule&nbsp;15d-14(a) of the Securities Exchange Act, as amended</TD> </TR> <TR valign="bottom" style="padding-top: 1px"><!-- Blank Space --> <TD nowrap align="right" valign="top">&nbsp;</TD> <TD align="right" valign="top">&nbsp;</TD> <TD valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD nowrap align="right" valign="top">&nbsp;</TD> <TD align="right" valign="top">31.4</TD> <TD nowrap valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">APS </DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">Certificate of James R. Hatfield, Senior Vice President and Chief Financial Officer, pursuant to Rule&nbsp;13a-14(a) and Rule&nbsp;15d-14(a) of the Securities Exchange Act, as amended</TD> </TR> <TR valign="bottom" style="padding-top: 1px"><!-- Blank Space --> <TD nowrap align="right" valign="top">&nbsp;</TD> <TD align="right" valign="top">&nbsp;</TD> <TD valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD nowrap align="right" valign="top">&nbsp;</TD> <TD align="right" valign="top">32.1</TD> <TD nowrap valign="top">*</TD> <TD>&nbsp;</TD> <TD align="center" valign="top" nowrap><DIV style="margin-left:0px; text-indent:-0px">Pinnacle West </DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section&nbsp;1350, as adopted pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002</TD> </TR> <TR valign="bottom" style="padding-top: 1px"><!-- Blank Space --> <TD nowrap align="right" valign="top">&nbsp;</TD> <TD align="right" valign="top">&nbsp;</TD> <TD valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD nowrap align="right" valign="top">&nbsp;</TD> <TD align="right" valign="top">32.2</TD> <TD nowrap valign="top">*</TD> <TD>&nbsp;</TD> <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">APS </DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section&nbsp;1350, as adopted pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002</TD> </TR> <TR valign="bottom" style="padding-top: 1px"><!-- Blank Space --> <TD nowrap align="right" valign="top">&nbsp;</TD> <TD align="right" valign="top">&nbsp;</TD> <TD valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD>&nbsp;</TD> <TD nowrap colspan="1" align="right" valign="top">101.INS</td> <TD nowrap valign="top">*</TD> <TD>&nbsp;</TD> <TD align="center" valign="top" nowrap><DIV style="margin-left:0px; text-indent:-0px">Pinnacle West<BR> APS** </DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">XBRL Instance Document</TD> </TR> <TR valign="bottom" style="padding-top: 1px"><!-- Blank Space --> <TD nowrap align="right" valign="top">&nbsp;</TD> <TD align="right" valign="top">&nbsp;</TD> <TD valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD>&nbsp;</TD> <TD nowrap colspan="1" align="right" valign="top">101.SCH</TD> <TD nowrap valign="top">*</TD> <TD>&nbsp;</TD> <TD align="center" valign="top" nowrap><DIV style="margin-left:0px; text-indent:-0px">Pinnacle West<BR> APS** </DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">XBRL Taxonomy Extension Schema Document</TD> </TR> <!-- End Table Body --></TABLE> </DIV> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->83<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --><TR valign="bottom"> <TD width="2%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="2%">&nbsp;</TD> <TD width="4%">&nbsp;</TD> <TD width="13%">&nbsp;</TD> <TD width="5%">&nbsp;</TD> <TD width="75%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B><I>Exhibit No.</I></B></TD> <TD>&nbsp;</TD> <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B><I>Registrant(s)</I></B></TD> <TD>&nbsp;</TD> <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B><I>Description</I></B></TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom" style="padding-top: 1px"><!-- Blank Space --> <TD nowrap align="right" valign="top">&nbsp;</TD> <TD align="right" valign="top">&nbsp;</TD> <TD valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD>&nbsp;</TD> <TD nowrap colspan="1" align="center" valign="top">101.CAL* </TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top" nowrap><DIV style="margin-left:0px; text-indent:-0px">Pinnacle West <BR> APS** </DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">XBRL Taxonomy Extension Calculation Linkbase Document</TD> </TR> <TR valign="bottom" style="padding-top: 1px"><!-- Blank Space --> <TD nowrap align="right" valign="top">&nbsp;</TD> <TD align="right" valign="top">&nbsp;</TD> <TD valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD>&nbsp;</TD> <TD nowrap colspan="1" align="center" valign="top">101.LAB* </TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top" nowrap><DIV style="margin-left:0px; text-indent:-0px">Pinnacle West <BR> APS** </DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">XBRL Taxonomy Extension Label Linkbase Document</TD> </TR> <TR valign="bottom" style="padding-top: 1px"><!-- Blank Space --> <TD nowrap align="right" valign="top">&nbsp;</TD> <TD align="right" valign="top">&nbsp;</TD> <TD valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD>&nbsp;</TD> <TD nowrap colspan="1" align="center" valign="top">101.PRE* </TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top" nowrap><DIV style="margin-left:0px; text-indent:-0px">Pinnacle West <BR> APS** </DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">XBRL Taxonomy Extension Presentation Linkbase Document</TD> </TR> <TR valign="bottom" style="padding-top: 1px"><!-- Blank Space --> <TD nowrap align="right" valign="top">&nbsp;</TD> <TD align="right" valign="top">&nbsp;</TD> <TD valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD>&nbsp;</TD> <TD nowrap colspan="1" align="center" valign="top">101.DEF* </TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top" nowrap><DIV style="margin-left:0px; text-indent:-0px">Pinnacle West <BR> APS** </DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">XBRL Taxonomy Definition Linkbase Document</TD> </TR> <!-- End Table Body --></TABLE> </DIV> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR style="font-size: 6pt"> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="96">&nbsp;</TD> </TR> <TR valign="top"> <TD nowrap align="left">*</TD> <TD>&nbsp;</TD> <TD>Furnished herewith as an Exhibit.</TD> </TR> <TR style="font-size: 3pt"><TD>&nbsp;</TD></TR> <TR valign="top"> <TD nowrap align="left">**</TD> <TD>&nbsp;</TD> <TD>Furnished voluntarily.</TD> </TR> </TABLE> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->84<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In addition, Pinnacle West hereby incorporates the following Exhibits pursuant to Exchange Act Rule&nbsp;12b-32 and Regulation &#167;229.10(d) by reference to the filings set forth below: </DIV> <DIV align="center"> <TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%"> <!-- Begin Table Head --><TR valign="bottom"> <TD width="1%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="2%">&nbsp;</TD> <TD width="10%">&nbsp;</TD> <TD width="2%">&nbsp;</TD> <TD width="31%">&nbsp;</TD> <TD width="2%">&nbsp;</TD> <TD width="40%">&nbsp;</TD> <TD width="2%">&nbsp;</TD> <TD width="7%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD nowrap align="center" colspan="3"><B><I>Exhibit</I></B></TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD nowrap align="center"><B><I>Previously Filed as</I></B></TD> <TD>&nbsp;</TD> <TD nowrap align="center"><B><I>Date</I></B></TD> <TD>&nbsp;</TD> </TR> <TR style="font-size: 10pt" valign="bottom"> <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B><I>No.</I></B></TD> <TD>&nbsp;</TD> <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B><I>Registrant(s)</I></B></TD> <TD>&nbsp;</TD> <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B><I>Description</I></B></TD> <TD>&nbsp;</TD> <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B><I>Exhibit</I></B><SUP style="font-size: 85%; vertical-align: text-top"><B>1</B></SUP></TD> <TD>&nbsp;</TD> <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B><I>Filed</I></B></TD> <TD>&nbsp;</TD> </TR> <!-- End Table Head --> <!-- Begin Table Body --> <TR valign="bottom"><!-- Blank Space --> <TD nowrap align="right" valign="top">&nbsp;</TD> <TD align="right" valign="top">&nbsp;</TD> <TD valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left" valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD nowrap align="right" valign="top">&nbsp;</TD> <TD align="right" valign="top">3.1</TD> <TD nowrap valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Pinnacle West </DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">Pinnacle West Capital Corporation Bylaws, amended as of May&nbsp;19, 2010 </TD> <TD>&nbsp;</TD> <TD align="left" valign="top">3.1 to Pinnacle West/APS June&nbsp;30, 2010 Form&nbsp;10-Q Report, File Nos. 1-8962 and 1-4473 </TD> <TD>&nbsp;</TD> <TD align="left" nowrap>8-3-10</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 1px"><!-- Blank Space --> <TD nowrap align="right" valign="top">&nbsp;</TD> <TD align="right" valign="top">&nbsp;</TD> <TD valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left" valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left" nowrap>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD nowrap align="right" valign="top">&nbsp;</TD> <TD align="right" valign="top">3.2</TD> <TD nowrap valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Pinnacle West </DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">Articles of Incorporation, restated as of May&nbsp;21, 2008 </TD> <TD>&nbsp;</TD> <TD align="left" valign="top">3.1 to Pinnacle West/APS June&nbsp;30, 2008 Form&nbsp;10-Q Report, File Nos. 1-8962 and 1-4473 </TD> <TD>&nbsp;</TD> <TD align="left" nowrap>8-7-08</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 1px"><!-- Blank Space --> <TD nowrap align="right" valign="top">&nbsp;</TD> <TD align="right" valign="top">&nbsp;</TD> <TD valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left" valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD nowrap align="right" valign="top">&nbsp;</TD> <TD align="right" valign="top">3.3</TD> <TD nowrap valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">APS </DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">Articles of Incorporation, restated as of May&nbsp;25, 1988 </TD> <TD>&nbsp;</TD> <TD align="left" valign="top">4.2 to APS&#146; Form&nbsp;S-3 Registration Nos. 33-33910 and 33-55248 by means of September&nbsp;24, 1993 Form&nbsp;8-K Report, File No.&nbsp;1-4473 </TD> <TD>&nbsp;</TD> <TD align="left" nowrap>9-29-93</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 1px"><!-- Blank Space --> <TD nowrap align="right" valign="top">&nbsp;</TD> <TD align="right" valign="top">&nbsp;</TD> <TD valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="left" valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR valign="bottom" style="padding-top: 1px"> <TD nowrap align="right" valign="top">&nbsp;</TD> <TD align="right" valign="top">3.4</TD> <TD nowrap valign="top">&nbsp;</TD> <TD>&nbsp;</TD> <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">APS </DIV></TD> <TD>&nbsp;</TD> <TD align="left" valign="top">Arizona Public Service Company Bylaws, amended as of December&nbsp;16, 2008 </TD> <TD>&nbsp;</TD> <TD align="left" valign="top">3.4 to Pinnacle West/APS December&nbsp;31, 2008 Form&nbsp;10-K, File Nos. 1-8962 and 1-4473</TD> <TD>&nbsp;</TD> <TD align="left" nowrap>2-20-09</TD> <TD>&nbsp;</TD> </TR> <!-- End Table Body --> </TABLE> </DIV> <DIV align="left"><DIV style="font-size: 10pt; margin-top: 10pt; width: 18%; border-bottom: 1px solid #000000">&nbsp;</DIV></DIV> <TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt"> <TR style="font-size: 6pt"> <TD width="3%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="96">&nbsp;</TD> </TR> <TR valign="top"> <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">1</SUP></TD> <TD>&nbsp;</TD> <TD>Reports filed under File Nos. 1-4473 and 1-8962 were filed in the office of the Securities and Exchange Commission located in Washington, D.C.</TD> </TR> </TABLE> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->85<!-- /Folio --> </DIV> <!-- PAGEBREAK --> <P><HR noshade><P> <H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P> <DIV style="font-family: 'Times New Roman',Times,serif; margin-left: .25in; width: 7.50in"> <DIV align="left"> <A name="114"></A> </DIV> <DIV align="center" style="font-size: 10pt; margin-top: 10pt">SIGNATURES </DIV> <DIV align="left" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. </DIV> <TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt"> <TR> <TD width="48%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="1%">&nbsp;</TD> <TD width="35%">&nbsp;</TD> <TD width="15%">&nbsp;</TD> </TR> <TR> <TD valign="top" align="left">&nbsp;</TD> <TD colspan="3" align="left">PINNACLE WEST CAPITAL CORPORATION<BR> (Registrant)<BR> &nbsp;</TD> <TD>&nbsp;</TD> </TR><TR> <TD align="left">Dated: October 28, 2010&nbsp;</TD> <TD valign="top">By:&nbsp;&nbsp;</TD> <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/ James R. Hatfield</TD> <TD>&nbsp;</TD> </TR><TR> <TD align="left">&nbsp;</TD> <TD>&nbsp;</TD> <TD colspan="2" align="left">James R. Hatfield&nbsp;</TD> <TD>&nbsp;</TD> </TR><TR> <TD align="left">&nbsp;</TD> <TD>&nbsp;</TD> <TD colspan="2" align="left">Sr. Vice President and Chief Financial Officer (Principal Financial Officer and Officer Duly Authorized to sign this Report)&nbsp;</TD> <TD>&nbsp;</TD> </TR> <TR> <TD colspan="5">&nbsp;</TD> </TR> <TR> <TD valign="top" align="left">&nbsp;</TD> <TD colspan="3" align="left">ARIZONA PUBLIC SERVICE COMPANY<BR> (Registrant)<BR> &nbsp;</TD> <TD>&nbsp;</TD> </TR><TR> <TD align="left">Dated: October 28, 2010&nbsp;</TD> <TD valign="top">By:&nbsp;&nbsp;</TD> <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/ James R. Hatfield</TD> <TD>&nbsp;</TD> </TR><TR> <TD align="left">&nbsp;</TD> <TD>&nbsp;</TD> <TD colspan="2" align="left">James R. Hatfield&nbsp;</TD> <TD>&nbsp;</TD> </TR><TR> <TD align="left">&nbsp;</TD> <TD>&nbsp;</TD> <TD colspan="2" align="left">Sr. Vice President and Chief Financial Officer (Principal Financial Officer and Officer Duly Authorized to sign this Report)&nbsp;</TD> <TD>&nbsp;</TD> </TR> </TABLE> <P align="center" style="font-size: 10pt">&nbsp; <P align="center" style="font-size: 10pt"><!-- Folio -->86<!-- /Folio --> </DIV> </BODY> </HTML>